YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)
Yangzijiang Shipbuilding - Strategic Review Of Investment Arm Cheers Market
- Proactive ESG initiatives to build cleaner ships and hive off investment arm will help to further re-rate the stock.
- 2Q21 beat expectations despite steel cost pressure.
- Raise Yangzijiang Shipbuilding's FY21-23F net profit forecast by 10-13% to reflect Xinfu acquisition and higher order wins in 2021.
- Reiterate BUY, target price lifted target price S$1.95. Upside potential to current 4% dividend yield.
Investment Thesis:
Undervalued and best proxy for newbuild supercycle.
- Yangzijiang Shipbuilding (SGX:BS6) has secured record-high order wins of US$6.7bn in 7M21, 34% higher than the last boom of US$5bn annual orders in 2007. The recent wave of newbuilding activities for containerships marks the beginning of a new supercycle since 2007. Next wave of orders is expected to come from bulk carriers in 2H21, followed by tankers in 2022.
Lifting target price to S$ 1.95; raising orders wins and earnings growth projections.
- We have raised our order win assumption for 2021 to US$7.5bn (from US$5.2bn), propelling 3-years earnings CAGR of 20%. Yangzijiang's dividend should rise to 5.0-6.5 cents (3.5-4.5% yield) in tandem with earnings growth. While Yangzijiang's Share Price has risen ~50% year-to-date, the stock remains undervalued at 0.8x P/BV, relative to historical upcycle and peer valuations.
- Catalysts to drive share price closer to our target price include:
- optimism on macro economy and shipping market;
- buoyant contract flows and improving pricing power;
- sequential earnings growth underpinned by revenue and margin expansion;
- potential increase in dividend payout;
- improving ESG score – potential spin-off of investment arm and gaining traction in dual fuel and liquefied natural gas (LNG) carrier market.
Valuation:
- Our target price of S$ 1.95 for Yangzijiang Shipbuilding is based on sum-of-parts (SOP), pegged to 10x P/E on FY21F shipbuilding earnings, 0.8x P/BV for investments and 1.0x P/BV for its marked-down bulk carrier/tanker fleets. This translates into 1.08x P/BV (0.5 standard deviation above its 5-year mean of 0.9x).
- See
Where we differ:
- Market has over-penalised Yangzijiang Shipbuilding for its debt investments, most of which are backed by collateral of 1.5-2.5x.
Key Risks to Our View:
- Revenue is denominated mainly in US dollars. Assuming the net exposure of ~50% is unhedged, every 1% US$ depreciation could lead to a 1.5% decline in earnings. Every 1% rise in steel cost, which accounts for about 20% of cost of goods sold (COGS), could result in a 0.8% drop in earnings.
Pei Hwa HO
DBS Group Research
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https://www.dbsvickers.com/
2021-08-06
SGX Stock
Analyst Report
1.95
UP
1.500
