Yangzijiang Shipbuilding - CGS-CIMB Research 2021-02-26: Orders Set To Reach 5-Year High In FY21


Yangzijiang Shipbuilding - Orders Set To Reach 5-Year High In FY21

  • Yangzijiang Shipbuilding hopes to attain US$3bn in orders by 1Q21F and reach a US$3.5bn order target win for 2021F, mainly for containerships. year-to-date order book at US$4.4bn.
  • Yangzijiang Shipbuilding's FY20 net profit of RMB2.5bn is below our expectations, due to forex loss and impairments, offset by tax credits. Overall profit in line with consensus.
  • Yangzijiang's share price is cheap vs peers, trading at trough of ~0.5x P/BV and 6x FY22F P/E. Yangzijiang Shipbuilding's order book could reach a 5-year high by end-2021F of US$4.7bn-5bn.

US$3bn orders by 1Q21; cherry picking contracts to sustain margin

  • Yangzijiang Shipbuilding (SGX:BS6) secured US$1.8bn orders in 2020, and year-to-date2021 wins of US$1.3bn, bringing its order book to U$4.4bn. Management is confident of achieving US$3bn in new orders by Mar 21 but keeps a prudent target of U$3.5bn for 2021F, implying a more subdued momentum in 2Q-3Q21F due to rising competition from Chinese peers aiming to gain market share.
  • Given its strong momentum achieved since 2H20, we think Yangzijiang Shipbuilding could cherry pick, selecting only good quality contracts/clients. Yangzijiang Shipbuilding guns for sizeable contracts with a series of 10 or more units to reap economies of scale and preserve margins.

Yangzijiang Shipbuilding's FY20 results highlights

  • Yangzijiang Shipbuilding's 4Q20 net profit of RMB753.4m (+29% q-o-q, +17% y-o-y) made up 27% of our FY20F mainly due to tax credit. FY20 net profit of RMB2.516bn was below our expectations, but in line with consensus. 4Q20 EBIT was below due to forex loss of RMB447m, impairment for PPE of RMB150m for Jiangsu Yangzi Jiashent Terminal to refect the decrease in value of its existing chemical storage tanks and terminal facilities after its plan to convert to an LNG terminal.
  • Profit before tax was cushioned by share of results of associates (+53% y-o-y, +464% q-o-q) to fair value gain of venture cap investment, as well as increased contribution of RMB55m from Japanese associate YAMIC (3Q20: RMB15m).

Margin could be stable y-o-y, higher proportion of containerships

  • Shipbuilding margin for 4Q20 dipped q-o-q to <24% (3Q20: 27%), while FY20’s improved to 20.7% (FY19:19.2%). The FY20 number included a 40% margin recognised on a high-margin (~40% gross margin) tanker taken over by a defunct yard in 3Q20, without which, FY20 gross profit margin be 18%.
  • Yangzijiang Shipbuilding’s current assumption for steel plate is RMB5,500/tonne and RMB/US$ is 6.4. This could yield a ~10-20% gross margin range (bulk carrier: 10%, containerships: 20%). Approximately 67% of its year-to-date order book are containerships. We expect 18% gross margin for FY21-23F and penciled in U$3.5bn of orders for 2021 and US$2.3bn for 2022.

Maintain ADD with a higher target price of S$1.54 (from S$1.37)

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-26
SGX Stock Analyst Report ADD MAINTAIN ADD 1.540 UP 1.370