Yangzijiang Shipbuilding - Hope arises with US$318m of orders
- We believe YZJ is on track to secure c.US$1.2bn of new orders (+46% yoy) in 2017, meeting our order target.
- It announced US$318m of new contracts in 1Q17, comprising 13 vessels that are mainly bulk carriers and woodchip carriers from Korean and Greek owners.
- The yard is seeing a more positive enquiry trend from bulk carriers on the back of strong BDI in recent months.
13 vessels for US$318m
- YZJ announced US$318m of shipbuilding orders in 1Q17, comprising 5 units of 82,000dwt bulk carriers, 5 units of 62,000dwt woodchip carriers, 2 units of 1,800 TEU containerships and one 6,500 dwt ConRo vessel. These vessels are scheduled for delivery in 2018-2020.
- Order drought could end earlier than expected. If we annualise the quarterly trend, YZJ could end 2017 with c.US$1.2bn of orders or 46% more than 2016 (US$0.82m).
Koreans are ordering from YZJ
- The five units of 62,000dwt woodchip carriers were ordered by Pan Ocean Korea. As highlighted in our note on 14 Mar 17 (‘At a discount to peers’), the contracts awarded by the Koreans were reported by Clarksons to be US$146m.
- We think YZJ’s cost competitiveness and strong track record are key to drawing orders from the Koreans, which have a shipbuilding industry within their own country.
Greeks are ahead of curve
- Included in 1Q17 orders are five 82,000dwt bulk carriers ordered by Greece-based Chartworld Shipping.
- This is the first major global bulk carriers order in 2017 after a drought in this space for the past 1-2 years. Assuming BDI remains steadfast, we expect to see order momentum from bulk carriers improve. This is in line with enquiries received from the segment, as seen by management.
Beneficiary of a smaller market share in China
- YZJ is ranked no.1 in the China shipbuilding industry by order book (US$4.6bn including the current order). As the industry consolidates, we expect YZJ to dominate the bulk carrier and multi-purpose vessels space.
Valuation at a discount to peers; maintain Add
- YZJ’s ability to clinch orders vs. its peers in Singapore and China should set it apart. However, valuation is unjustly punished by investment in assets Held to Maturity (HTM), in our view. It is trading at 0.9x CY17 P/BV, a discount to SMM (1.5x) and Cosco Corp (1.2x).
- We make no changes to our EPS and target price (S$1.21), still based on SOP (1x P/BV for shipbuilding business and 0.85x P/BV for HTM business).
- Key catalysts include stronger-than-expected orders and margins.
- Downside risks include a sharp surge in steel costs and order cancellations.