Yangzijiang Shipbuilding - UOB Kay Hian 2021-03-08: Another Blockbuster Order Win; Year-To-Date Total The Highest Since 2008

YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)

Yangzijiang Shipbuilding - Another Blockbuster Order Win; Year-To-Date Total The Highest Since 2008

Following on from January’s US$1.3b order, Yangzijiang Shipbuilding (SGX:BS6) has obtained a 31-vessel order worth US$1.74b. Of the 31 vessels, 21 are for containerships ranging in size from 1,800TEU to 15,000TEU.
With the majority of this year’s orders being containerships which generate higher profit margins, Yangzijiang Shipbuilding’s earnings should be well supported. We upgrade 2021-23 earnings by 3-10% as well as our 2021 order-win expectation to US$4b from US$3b previously.
Maintain BUY on Yangzijiang Shipbuilding with a higher target price of S$1.36.

Yangzijiang Shipbuilding announced a 31-vessel order win worth US$1.74b after the market close on 5 March. The order is for 21 containerships varying in size from 1,800TEU to 15,000TEU while the 10 bulk carriers are 82,300dwt each (for more detail, please refer to the report attached below).
We understand that while some of the orders came from China-based clients, there were orders from international clients as well.

To recap the 2020 results announced on 25 February, Yangzijiang Shipbuilding witnessed stronger-than-expected shipbuilding margins which was attributable to its construction of containerships which attract higher profit margins relative to bulk carriers. See our previous report: Yangzijiang Shipbuilding - UOB Kay Hian 2021-03-01: 2020 Strong Shipbuilding Margins The Highlight, More Order Wins To Come.
As the majority of the orders this year are containerships, Yangzijiang Shipbuilding’s higher shipbuilding margins from 2020 will spill into 2021 and be a secular trend for the company going forwards. On our estimates, ~75% of the US$1.74b order is attributable to the containerships.

Post Friday’s order win, we have upgraded our 2021 order win expectation of Yangzijiang Shipbuilding from US$3b to US$4b. Our 2022 order-win expectation of US$3b is unchanged at present.
Post its IPO in 2007, Yangzijiang Shipbuilding announced record orders worth US$5b but it has not seen those levels in the past 13 years. As a result, the year-to-date order wins of US$3.04b are the highest since 2008, and there may be a slight chance that 2021 may see orders approach levels seen in 2008, in our view.

As a specialist builder of containerships (~65% of its current orderbook are containerships), Yangzijiang Shipbuilding generates higher profit margins on these types of vessels relative to bulk carriers and tankers, in our view.
During its 2020 results call, Yangzijiang Shipbuilding noted that it was seeing a significant number of enquiries for containerships and thus the large order wins to date are testament to the company’s success in converting these enquiries into firm orders.

Yangzijiang Shipbuilding disclosed that as at end-20, it had 25% of its shipyard capacity mothballed due to a lack of orders. However, with the company’s slipways and dry docks all fully utilised at present, and with a better shipbuilding outlook, Yangzijiang Shipbuilding will reopen its Jiangsu Yangzi Changbo shipyard by end-1H21.
Being a smaller yard, it will be able to construct around 6-7 ships per year, all of which will be smaller-sized feeder containerships. Note that Yangzijiang Shipbuilding is not planning to expand capacity as general shipbuilding margins do not justify such expansion, and yard capacity remains in an oversupplied situation in China.

We have upgraded our Yangzijiang Shipbuilding's earnings forecasts by 3%, 9% and 10% for 2021, 2022 and 2023 respectively on the back of Friday’s order wins. We had previously factored in a slight 1.5ppt shipbuilding margin expansion in 2022 and have not changed this for now. At present, our shipbuilding margins for 2021 are 13.5% and 15% for 2022-23.

We maintain our BUY rating on Yangzijiang Shipbuilding and upgrade our target price to S$1.36, an increase of 9% from S$1.25 previously.
We have incorporated a P/E valuation of S$1.47 based on a target 10x multiple which is 1SD above the company’s past five-year average P/E of 8x. Thus, our new target price of S$1.36 is an aggregate of our P/E and P/B valuation methodologies. Our target P/B multiple remains at 0.7x which results in a valuation of S$1.25.

See Yangzijiang Share Price; Yangzijiang Target Price; Yangzijiang Analyst Reports; Yangzijiang Dividend History; Yangzijiang Announcements; Yangzijiang Latest News.
We view our target P/E multiple of 10x as reasonable given our belief that the company will see strong earnings coming through in the next few years. On our new estimates, Yangzijiang Shipbuilding will deliver a 16% three-year earnings CAGR over the 2020-23 period.
Yangzijiang Shipbuilding is also one of the UOBKH's Singapore Stock Alpha Picks for March 2021 mentioned in Singapore Stock Alpha Picks (Mar 2021) - UOB Kay Hian 2021-03-05: Add Frencken & China Sunsine; Remove BRC Asia & First Resources.

Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-03-08

SGX Stock Analyst Report BUY MAINTAIN BUY 1.36 UP 1.250