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

YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)

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.

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 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).

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.

We cut our Yangzijiang Shipbuilding's earnings per share forecasts by 5-11% for FY21-22F mainly to account for higher administrative expenses to reflect potential forex loss. Our FY22F earnings per share forecast is up by 7% on stronger order wins year-to-date.
See Yangzijiang Share Price; Yangzijiang Target Price; Yangzijiang Analyst Reports; Yangzijiang Dividend History; Yangzijiang Announcements; Yangzijiang Latest News.
We like Yangzijiang Shipbuilding for its earnings visibility, strong net cash of RMB2bn as at end-2020 as well as reputable track record in shipbuilding. We estimate Yangzijiang Shipbuilding’s order book could reach a 5-year record of US$4.8-5bn by end-2021F.
We now value Yangzijiang Shipbuilding based on 5-year average P/BV of 0.8x CY21F P/BV.
Stronger order wins is a catalyst.
Order drought a downside risk.

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-26

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