Yangzijiang Shipbuilding - UOB Kay Hian 2021-05-19: More Upside For The Containership Market

YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)

Yangzijiang Shipbuilding - More Upside For The Containership Market

The bulk of Yangzijiang Shipbuilding’s orderbook growth in the past 12 months has come from containerships totalling 81 vessels (or 70% of its orders) worth US$5.42b. We believe this order momentum can be sustained as the number of vessels on order globally is at a 15-year low. Also, there is a high level of scrapping of small-and medium-sized container vessels with replacement likely for the latter segment.
Yangzijiang Shipbuilding also has exposure to dual-fuel LNG containerships.
Maintain BUY. Target price: S$1.76.

With slightly over US$4b in new orders garnered year-to-date in 2021, it would appear that Yangzijiang Shipbuilding (SGX:BS6) is well on its way to beating its 2007 new-order win total of US$5b in a calendar year. In the past 12 months (May 20-Apr 21), Yangzijiang Shipbuilding has won US$5.42b in orders, and of the 115 vessels ordered, 81 (or 70%) are containerships.

as the number of containerships on order is at a 15-year low at only 284 in 2021 year-to-date vs 2005 when 900 of such ships were on order (see chart). Notably, the vessels that have seen a pick-up in orders are the small (1,000-4,000TEU) and large-sized ( > 5,000TEU) vessels.
Also, we highlight that the number of vessels on order closely tracks the container timecharter index, with the latter seeing a material increase year-to-date in 2021. One potential conclusion is that orders for new container vessels will continue to flow to shipbuilders in 2021 and 2022.

A recent meeting with a ship owner revealed that it will be increasingly difficult for owners to order traditional 100% fuel oil or marine diesel-powered vessels, especially for medium-to large-sized vessels. The key issue is a ship’s useful life of 25 years which would potentially put the majority of a newbuild’s lifespan into a period where many governments will increasingly legislate to control carbon and greenhouse gas emissions. Instead, dual-fuelled vessels (ie using both fuel oil/diesel and LNG) will be the focus, along with their less polluting engines.
The cost differential between LNG-powered vessels and traditional vessels has come down from a 20% premium five years ago to about 5% or less. Yangzijiang Shipbuilding has already garnered orders for six dual-fuel vessels of which two are very large containerships. Having such early exposure to this niche segment bodes well for Yangzijiang Shipbuilding’s long-term shipbuilding prospects, in our view.

Small and medium-sized containerships have seen increased levels of scrapping in the past decade with the former reaching 50% of total fleet scrapped in 2021, while 30% of the fleet of medium-sized vessels were scrapped ytd in 2021. While the supply of small feeder containerships (ie < 1,000TEU) is unlikely to materially increase in the next few years, given that orders have been in single digits since 2011, orders for medium-sized vessels appear to have meaningful upside, in our view.

Maintain BUY on Yangzijiang Shipbuilding with a target price of S$1.76, based on an aggregate of our P/E and P/B valuation methodologies.
- Our P/E valuation of S$1.89 is based on a target 10x multiple (+1 standard deviation above Yangzijiang Shipbuilding’s past five-year average P/E) and pegged to our 2022 EPS estimate.
- Our target P/B multiple of 0.9x is 1 standard deviation above Yangzijiang Shipbuilding’s past-five-year average resulting in a P/B valuation of S$1.62.
See

Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-05-19

SGX Stock Analyst Report BUY MAINTAIN BUY 1.760 SAME 1.760