• Yangzijiang Shipbuilding (SGX:BS6) has secured US$534m of new contracts, bringing year-to-date order wins to US$7.21bn and estimated order book to a record of US$9.18bn.
• Near-term catalyst is clarity in debt investment division spinoff structure.
• Reiterate ADD rating on Yangzijiang Shipbuilding and SOP-based target price.

LOI Declared Effective, New Order Win

• Yangzijiang announced that the letter of intent (LOI) for 5 additional units of dual-fuel 7,000TEU containerships (with US$500m) has been declared effective. Recall that Yangzijiang Shipbuilding previously reported new order wins on 30 July 2021 for 10 LNG dual-fuel 7,000TEU containerships and the LOI for 5 identical vessels placed by repeat customer Seaspan Corporation. In addition, in August 2021, Yangzijiang Shipbuilding secured an order for the building and delivery of 1 unit of 82,000DWT, estimated to be worth US$34m.
• Deliveries are mainly scheduled for FY2022-2024. year-to-date, Yangzijiang Shipbuilding has secured 118 effective shipbuilding contracts. Order book stands at ~US$9.18bn.

Slots Are Quite Full; Margins Could be Preserved If Steel Stabilises

• Yangzijiang Shipbuilding is currently operating at full capacity till the sale of second-hand bulk carriers to boost net profits.

Near-term Catalyst: Debt to Securities Spinoff

• We believe the potential stake in the debt to securities portfolio while reaping the fruits of strong shipbuilding orders.

Reiterate ADD on Yangzijiang Shipbuilding

• We believe Yangzijiang Shipbuilding ’s ability to secure high-value orders amidst soaring raw material prices, coupled with the impending spinoff of its debt investment division, will further strengthen investors’ confidence and therefore drive the share price in the near term.

• Key downside risks: spinoff of debt to securities falling through and sharp decline in freight rates.

Source: CGS-CIMB Research - 3 Sep 2021