Comprehensive Analysis of Offshore & Marine Companies

Broker: CGS International

Date: November 8, 2024

Yangzijiang Shipbuilding: Leading the Charge

Yangzijiang Shipbuilding (YZJSB) has set an ambitious target for FY25F with an order win target of more than US\$4.5 billion, driven by new yard capacity at Xinqiao Park. The expansion is expected to add capacity for 12 units of mid-sized vessels annually. This move has led to an upward revision of order win targets for FY25F/26F to US\$5.5 billion annually.

The 3Q24 margins showed improvements over 1H24 due to stable steel prices, which hovered around Rmb3,500/metric ton, down 12% year-to-date. Management highlighted that the company has secured slots for all engines required to execute its orderbook, with deposit trends remaining at 10-15% for new contracts. However, a shift in delivery mix towards oil tankers in FY25F could impact margins, as oil tanker ASPs range between US\$50m-80m compared to containerships’ US\$100m-250m.

YZJSB is scheduled to deliver 64 oil tankers by 2027F, which would constitute 32-43% of the delivery mix. Despite this, the company’s strong balance sheet and better ROE (27%) position it favorably against regional peers, trading at a discount of 9x CY26F P/E versus Chinese peers’ 15x. The target price remains at S\$3.20.

For FY24F, revenue is expected to reach Rmb27,056 million with operating EBITDA at Rmb7,722 million and net profit at Rmb6,149 million. The gross margin forecasts have been refined to 27%/26%/27% for FY24F/25F/26F.

Keppel Ltd: A Steady Performer

Keppel Ltd’s stock is rated as ‘Add’ with a target price of S\$8.28. The company is projected to have a stable growth with a P/E ratio of 13.8x for CY24F, improving to 12.7x and 12.6x for CY25F and CY26F respectively. The company’s recurring ROE stands at 1.05 for CY24F and slightly decreases to 1.02 for CY25F. Dividend yield is expected to be 7.6% for CY24F.

Capitaland Investment: A Strong Contender

Capitaland Investment is also rated as ‘Add’ with a target price of S\$4.30. The company shows a remarkable growth trajectory with a P/E ratio of 19.9x for CY24F, dropping to 14.9x and 14.2x for CY25F and CY26F respectively. The company’s recurring ROE is estimated at 1.00 for CY24F and 0.95 for CY25F, with a dividend yield of 5.0% for CY24F.

Seatrium Ltd: Eyeing Steady Growth

Seatrium Ltd is rated as ‘Add’ with a target price of S\$2.69. The company is expected to have a P/E ratio of 30.0x for CY24F, improving significantly to 21.0x and 11.9x for CY25F and CY26F respectively. Despite not having a dividend yield, the company’s consistent performance and growth prospects make it a reliable investment.

COSCO Shipping International: A Notable Player

COSCO Shipping International is currently not rated, with its P/E and other financial metrics not provided. However, it remains a significant player in the shipping industry.

China CSSC Holdings Ltd: Robust Growth Prospects

China CSSC Holdings Ltd is not rated but shows impressive growth with a P/E ratio of 38.3x for CY24F, dropping to 20.6x and 15.2x for CY25F and CY26F respectively. The company has a recurring ROE of 3.22 for CY24F, decreasing to 2.84 for CY25F, with a dividend yield of 8.6% for CY24F.

China Shipbuilding Industry Co: A Strong Contender

China Shipbuilding Industry Co, not rated, has a high P/E ratio of 61.2x for CY24F, reducing to 28.1x and 15.3x for CY25F and CY26F respectively. The company’s recurring ROE stands at 1.39 for CY24F and 1.32 for CY25F, with a dividend yield of 2.3% for CY24F.

CSSC Offshore and Marine Engineering: A Major Player

CSSC Offshore and Marine Engineering, also not rated, has a P/E ratio of 78.1x for CY24F, dropping to 39.6x and 13.6x for CY25F and CY26F respectively. The company’s recurring ROE is estimated at 2.24 for CY24F and 2.15 for CY25F, with a dividend yield of 2.5% for CY24F.

Korea Shipbuilding & Offshore: A Prominent Competitor

Korea Shipbuilding & Offshore is rated as ‘Add’ with a target price of KRW232,000. The company has a P/E ratio of 19.2x for CY24F, improving to 8.5x and 5.6x for CY25F and CY26F respectively. The recurring ROE is 1.28 for CY24F and 1.09 for CY25F, with a dividend yield of 6.9% for CY24F.

HD Hyundai Mipo: Steady Performer

HD Hyundai Mipo is rated as ‘Add’ with a target price of KRW143,000. The company shows a high P/E ratio of 127.8x for CY24F, dropping to 18.9x and 12.7x for CY25F and CY26F respectively. The recurring ROE is 2.19 for CY24F and 1.97 for CY25F, with a dividend yield of 1.7% for CY24F.

Samsung Heavy Industries: A Major Player

Samsung Heavy Industries is rated as ‘Add’ with a target price of KRW16,500. The company has a P/E ratio of 43.1x for CY24F, improving to 19.9x and 11.3x for CY25F and CY26F respectively. The recurring ROE is 2.64 for CY24F and 2.32 for CY25F, with a dividend yield of 6.3% for CY24F.

Hanwha Ocean: A Key Competitor

Hanwha Ocean is rated as ‘Add’ with a target price of KRW42,600. The company has a high P/E ratio of 56.6x for CY24F, reducing to 23.0x and 13.3x for CY25F and CY26F respectively. The recurring ROE is 2.47 for CY24F and 2.23 for CY25F, with a dividend yield of 4.5% for CY24F.

Sejin Heavy Industries Co Ltd: A Notable Player

Sejin Heavy Industries Co Ltd, not rated, has a P/E ratio of 27.7x for CY24F, improving to 9.9x and 7.8x for CY25F and CY26F respectively. The company’s recurring ROE is estimated at 2.25 for CY24F and 1.98 for CY25F, with a dividend yield of 8.1% for CY24F.

Mitsui E&S Co Ltd: A Leading Competitor

Mitsui E&S Co Ltd, not rated, shows impressive growth with a P/E ratio of 4.6x for CY24F, increasing to 6.4x and 8.8x for CY25F and CY26F respectively. The company has a recurring ROE of 0.72 for CY24F, decreasing to 0.64 for CY25F, with a dividend yield of 21.9% for CY24F.

Brookfield Corp: A Strong Contender

Brookfield Corp, not rated, has a P/E ratio of 15.3x for CY24F, improving to 13.9x and 12.4x for CY25F and CY26F respectively. The company’s recurring ROE stands at 2.09 for CY24F and 1.98 for CY25F, with a dividend yield of 9.0% for CY24F.

CSE Global: A Reliable Performer

CSE Global is rated as ‘Add’ with a target price of S\$0.62. The company has a P/E ratio of 10.0x for CY24F, improving to 8.7x and 7.9x for CY25F and CY26F respectively. The recurring ROE is 1.35 for CY24F and 1.29 for CY25F, with a dividend yield of 13.9% for CY24F.

SATS Ltd: A Notable Player

SATS Ltd is rated as ‘Add’ with a target price of S\$4.40. The company shows a high P/E ratio of 27.7x for CY24F, dropping to 19.8x and 16.7x for CY25F and CY26F respectively. The company’s recurring ROE is estimated at 2.26 for CY24F and 2.07 for CY25F, with a dividend yield of 8.4% for CY24F.

Sembcorp Industries: A Key Competitor

Sembcorp Industries is rated as ‘Add’ with a target price of S\$7.32. The company has a P/E ratio of 8.9x for CY24F, improving to 8.5x and 8.3x for CY25F and CY26F respectively. The recurring ROE is 1.67 for CY24F and 1.45 for CY25F, with a dividend yield of 20.3% for CY24F.

ST Engineering: A Major Player

ST Engineering is rated as ‘Add’ with a target price of S\$5.30. The company has a P/E ratio of 20.8x for CY24F, improving to 18.1x and 16.7x for CY25F and CY26F respectively. The company’s recurring ROE is estimated at 5.48 for CY24F and 4.91 for CY25F, with a dividend yield of 27.3% for CY24F.

SIA Engineering: A Reliable Performer

SIA Engineering is rated as ‘Add’ with a target price of S\$2.65. The company shows a high P/E ratio of 19.8x for CY24F, dropping to 17.9x and 16.4x for CY25F and CY26F respectively. The company’s recurring ROE is estimated at 1.57 for CY24F and 1.52 for CY25F, with a dividend yield of 8.0% for CY24F.

ESG Considerations

Yangzijiang Shipbuilding’s ESG score was impacted by controversies, notably in 2019 when its then Executive Chairman was implicated in an anti-graft investigation. The current LSEG combined ESG score is D+, with E: C-, S: C-, and G: D+. Despite this, YZJSB is committed to designing and building energy-efficient vessels in line with China’s carbon neutrality goals. The company’s initiatives under its “Green Vessel” and “Green Factory” strategies focus on waste reduction, environmental restoration, and the promotion of LNG utilization to replace traditional energy sources.

Conclusion

Overall, the offshore and marine sector shows promising growth prospects with Yangzijiang Shipbuilding leading the charge. Other notable players like Keppel Ltd, Capitaland Investment, and Seatrium Ltd also demonstrate strong performance and growth potential. Investors should consider these companies for their robust financial metrics and strategic initiatives.