Yangzijiang Shipbuilding - UOB Kay Hian 2021-04-21: Another Month, Another US$1b In New Orders


Yangzijiang Shipbuilding - Another Month, Another US$1b In New Orders

  • With the ink barely dry on the US$1.7b worth of order wins in Mar 21, Yangzijiang Shipbuilding (SGX:BS6) has announced another slate of orders for 15 vessels totalling US$0.97b. More than half of these are containerships, which is positive given that such vessels attract higher shipbuilding margins.
  • As a result of the order wins, we have increased our EPS estimates for 2021-23 as well as raised our order-win expectation for 2021 to US$5.5b.
  • Maintain BUY with a higher target price of S$1.76.

Building on its success.

  • In yet another positive development, Yangzijiang Shipbuilding announced on 19 Apr 21 that it had entered into shipbuilding contracts for 15 vessels, with a total contract value of US$0.97b. Of the 15 vessels, it was heartening to note that the company continues to garner orders for higher-margin containerships with 8 of them being containerships (6 units of 15,000TEU containerships and 2 smaller units of 2,400TEU containerships).
  • In addition, there were orders for two 50,000DWT medium-range tankers, three 82,300DWT bulk carriers and two 31,800DWT “Great Lake” bulk carriers.
  • Yangzijiang Shipbuilding disclosed that these vessels are mainly scheduled for delivery in 2022-23, and we understand that the clients were from both China and overseas.

Increasing Yangzijiang's earnings forecasts for 2021-23.

  • We have raised our net profit forecasts of Yangzijiang Shipbuilding for 2021-23 by 4-12% and have also raised our 2021 order win expectation from US$4b to US$5.5b. Our 2022 order win expectation has also been increased, rising from US$3b to remains at 13.5%, however we have lowered gross profit margin estimates by 1ppt for 2022- 23 to take into account higher steel prices as this could lead to minor margin compression in the medium to long term.

We maintain our BUY rating on Yangzijiang with higher target price

  • We maintain our BUY rating on Yangzijiang Shipbuilding and raise our target price to S$1.76 (+29% from S$1.36 previously). Valuation remains methodologies:
    • Our P/E valuation of S$1.89 is based on a target 10x multiple which is 1 standard deviation above Yangzijiang Shipbuilding’s past 5-year average P/E of 7.4x, and is pegged to our 2022 EPS estimate to enable us to capture the earnings upside for 2022 and onwards. Note that our prior P/E valuation was pegged to our 2021 EPS estimates.
    • Our target P/B multiple – pegged to our estimated 2021 book value per share – has been upgraded to 0.9x which is 1 standard deviation above Yangzijiang Shipbuilding’s past 5-year average (0.7x previously). This results in a P/B valuation of S$1.62. We believe this upgrade towards 1x P/B is reasonable given our forecast for ROE to continue to expand towards 10% by end-22.
  • Yangzijiang Shipbuilding has been one of the UOBKH's Singapore Stock Alpha Picks since September 2020. See recent report: Singapore Stock Alpha Picks (April 2021) - UOB Kay Hian 2021-04-06: Adding UMS, Removing Frencken.
  • Who's buying Yangzijiang shares? See the summary of weekly trading statistics at Yangzijiang Shipbuilding (SGX:BS6).

Catalyst to Yangzijiang's share price

Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-04-21
SGX Stock Analyst Report BUY MAINTAIN BUY 1.76 UP 1.360