Yangzijiang Shipbuilding - CGS-CIMB Research 2021-03-05: Earnings Visibility Secured By Record Win


Yangzijiang Shipbuilding - Earnings Visibility Secured By Record Win

  • We estimate Yangzijiang Shipbuilding (SGX:BS6)’s order book at US$6.1bn with the latest US$1.74bn order win. This brings year-to-date order secured to a record US$3.04bn.
  • We believe Yangzijiang Shipbuilding’s yard is booked till 2H2023F, securing earnings visibility. Positive shipping industry drivers point to more new building orders ahead.
  • Reiterate ADD, with an unchanged target price of S$1.54 for Yangzijiang Shipbuilding, still based on a 5-year average P/BV of 0.8x CY21F. Stronger order wins are key catalysts.

Order wins at record high; order book at US$6.1bn

  • Yangzijiang Shipbuilding announced a US$1.74bn order win, bringing year-to-date orders to a record US$3.04bn, the highest since 2009. The contracts secured are for 31 vessels, mainly 21 containerships (four units of 15k TEU, five 12.2k TEU, four 11.8k TEU, four 2.6k TEU, and four 1.8k TEU) and 10 bulk carriers (82.3k dwt).
  • The customer’s name is not disclosed. According to Clarksons Research, Yangzijiang Shipbuilding’s customer Seaspan had recently placed similar containership orders worth US$900m (four units of 15k TEU and five units of 12.2k TEU) with an unnamed shipyard.
  • The order win is in line with Yangzijiang Shipbuilding management’s guidance. We have penciled in U$3.5bn worth of new wins for 2021F. Given its strong momentum achieved since 2H20, we think Yangzijiang Shipbuilding could cherry pick, selecting only good quality contracts/clients.
  • Yangzijiang Shipbuilding is gunning for sizeable contracts (with a series of 10 or more units) to reap economies of scale and preserve margins. To date, we estimate Yangzijiang Shipbuilding having a few sets of 10 series feeder Panamax containerships (1.8k TEU, 4.6k TEU) and Panamax bulk carriers (82k dwt) to see some margin expansion ahead.

Positive shipping industry drivers

  • According to Clarksons, the near-term outlook remains positive. The containership trade is still experiencing support from widespread port congestion and logistical disruption, which could continue to have a significant impact on the market balance. This is likely to take some time to ease.
  • Demand conditions remain supportive, with pent-up inventory re-stocking, consumer activity shift towards goods, and strong PPE (and home working equipment) volumes. Containership freight rates are still high, with the Shanghai Containerized Freight Index (SCFI) index at 2,776 points at end-Feb (similar to early-Jan level).
  • Global orderbook is equivalent to 12% of fleet capacity at the beginning of Mar, which is still manageable in our view (compared with the 19% in 2015 when Yangzijiang Shipbuilding last had a good showing in containership order win, with a total annual win of US$2.3bn).

Undemanding valuations; reiterate ADD and target price of S$1.54

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-05
SGX Stock Analyst Report ADD MAINTAIN ADD 1.540 SAME 1.540