Executive Summary
In a report issued on February 27, 2025 by CGS International, Yangzijiang Shipbuilding showcased strong performance in the second half of 2024, driven by robust margin expansion across its shipping and shipbuilding segments. The company beat expectations with a 2H24 net profit of RMB 3.58 billion, supported by rising gross margins – a 5.5 percentage point increase in shipping and 3.8 percentage points in shipbuilding. With a record delivery of 64 vessels in FY24 and yard capacity fully booked until 2027, Yangzijiang is confidently targeting US\$6 billion order wins in FY25.
Yangzijiang Shipbuilding: A Closer Look
Financial Performance and Margin Expansion
Yangzijiang’s 2H24 performance demonstrated significant profit acceleration, with net profits of RMB 3.58 billion—57% of the full-year 2024 forecasts. The company’s performance was bolstered by a favorable foreign exchange environment and declining steel prices, which propelled the gross margins in the shipbuilding segment to 29.7% from 25.9% in the first half of 2024. Similarly, its shipping segment benefitted from higher charter rates and an increased fleet, thereby lifting margins to 46% from 40.5%.
Delivery and Order Book Strength
Maintaining an aggressive delivery record, Yangzijiang Shipbuilding delivered 64 vessels in FY24, achieving 102% of its delivery target. Despite a slowdown in enquiries – as liners await fleet decisions after large orders in 2024 – the company’s yard capacity is already fully booked through 2027. This robust order book underpins management’s confidence in meeting the FY25 order win target of US\$6 billion.
Dividend Policy and Investor Returns
Reflecting its strong financial performance, management proposed an increased dividend of 12 Scts per share (a payout ratio of 39%) compared with 6.5 Scts (34%) in FY23. This improves shareholder returns and underscores the company’s commitment to rewarding investors.
Future Growth Drivers and Risks
Looking ahead, Yangzijiang is poised to benefit from prolonged low steel costs and favorable FX trends (with the US dollar strengthening against the RMB). However, risks remain, including potential surges in steel costs, order cancellations, and uncertainties associated with punitive measures by the US government targeting the Chinese shipbuilding industry. Furthermore, pressures such as earlier delivery slots from competitors and potential price cuts by Korean shipyards are points of caution.
Recommendation
The report reiterates an “Add” rating with an unchanged target price of S\$3.62, providing a near-term upside of 48.4% from the current price of S\$2.44. This reflects the company’s strong margins, solid order book, and strategic positioning in the competitive shipbuilding space.
Detailed Financial Metrics and Projections
The report provides extensive financial forecasts from December 2023 to December 2026, evidencing healthy growth in revenues, EBITDA, and net profit. Key highlights include:
- Revenue Growth: Forecasted revenue growth of 16.5% in Dec-23A, moderating to a slight contraction in FY25F, then rebounding by FY26F.
- Operating EBITDA Margin: Expanding from 21.6% to nearly 29.6% by FY26F showcasing operational efficiency improvements.
- Balance Sheet Strength: Significant increases in cash and equivalents (from RMB 16.56 billion in Dec-23A to RMB 31.73 billion in Dec-26F) and increasing shareholders’ equity indicate robust liquidity and financial stability.
- Key Ratios: Strong interest coverage and low leverage underpin the company’s resilience. Metrics such as ROIC and ROCE have also improved favorably over the forecast period.
Peer and Sector Comparison
The report not only dives deep into Yangzijiang Shipbuilding but also benchmarks industry performance across a wide spectrum of players in the offshore and marine sector. The detailed comparison spans companies across different regions:
Asian Shipbuilders
Keppel Ltd: Target price of S\$9.28 with a market cap of approximately S\$9,255 million; operating with an EBITDA margin of 14.5% and dividend yield of 7.6%.
Seatrium Ltd: Exhibits a high growth potential with a 24.3% EPS growth and dividend yield of 4.7%, though with a smaller market capitalisation relative to its peers.
Chinese Shipbuilders
China CSSC Holdings Ltd: A heavyweight with a market cap of nearly RMB 19,204 million and a P/BV ratio of 1.2, reflecting a solid balance sheet and stable dividend yields.
China Shipbuilding Industry Co: Recognised for its volume, holding significant market share with strong profitability metrics.
CSSC Offshore and Marine Engineering: Maintains high recurring ROEs, underlining robust operational performance in the offshore segment.
Korean Shipbuilders
Korea Shipbuilding & Offshore: With a market cap of 216,500 and proven consistency in delivery, their operating performance and yield strength make them solid competitors.
Samsung Heavy Industries and Hanwha Ocean: Both companies post strong revenue and profitability figures, with Samsung Heavy Industries enjoying a comparatively high profit margin and Hanwha Ocean recording impressive dividend yields.
Japanese and US Shipbuilders
Mitsui E&S Co Ltd: Represents the Japanese segment with a more conservative P/E ratio and EPS growth rates.
Brookfield Corp and other US players: Generally exhibit higher diversification in operations and offer attractive risk-adjusted returns.
Other Notable Peers
SATS Ltd, Sembcorp Industries, ST Engineering, and SIA Engineering: These companies reinforce the sector’s diverse landscape beyond traditional shipbuilding, extending into allied services such as asset management, logistics, and technical engineering support.
Sector Trends and Market Drivers
The detailed analysis is supported by comprehensive charts showing trends in China’s domestic hot-rolled steel average spot prices, an essential input cost for shipbuilders, and RMB/USD exchange rate movements. The favorable trend in steel prices, combined with a strengthening US dollar, has benefitted Yangzijiang’s cost structure and contributed to the margin expansion witnessed in the latest half-year period.
Financial Forecasts and Key Ratios
The report outlines precise financial forecasts including revenue, gross profit, EBITDA, and net profit projections out to FY26. It provides detailed balance sheet highlights such as cash position, debtor levels, inventories, and long-term debt. Noteworthy ratios include:
- Compound operating EBITDA growth rates nearing 50% in the near-term.
- Increasing net cash per share, reflecting a strong liquidity profile.
- Robust ROIC and ROCE figures, showcasing high capital efficiency.
- A dividend payout policy with yields ranging between 3.7% and 3.87% over the forecast period.
Rating Distribution and Final Thoughts
The research report breaks down the rating distribution among investment banking clients with 67.4% “Add”, 22.2% “Hold”, and 10.4% “Reduce”. Yangzijiang Shipbuilding, in particular, is strongly endorsed with an “Add” rating from CGS International, signaling robust growth potential and market confidence. The company is positioned very well in a competitive market where industry peers – spanning from established Chinese giants to dynamic Korean and Japanese shipbuilders – serve as both benchmarks and competitive forces driving improvement across the sector.
Conclusion
Yangzijiang Shipbuilding’s comprehensive performance review highlights its strong margin expansion, resilient order book, and commitment to shareholder returns through dividend increases. With a confident forecast of US\$6 billion in FY25 order wins and a robust operational outlook, the company remains an attractive “Add” for investors looking for exposure in the rapidly evolving offshore and marine shipbuilding industry. The peer comparisons underscore the company’s competitive edge amidst a diverse group of global shipbuilders, making it a standout in a highly competitive sector.
Disclaimer
This article is based solely on the content of a comprehensive research report prepared by CGS International on February 27, 2025. All figures, projections, and recommendations are as stated in the report.
