Yangzijiang Shipbuilding: Confident Order Win Target & Robust Margin Expansion—A Deep Dive Analysis

Broker: CGS International

Date: February 27, 2025

Company Overview

Yangzijiang Shipbuilding (YZJSB) has delivered an outstanding performance in the offshore and marine sector, posting a 2H24 net profit of Rmb3.58 billion. This result not only outpaced expectations—with the half‐year figure accounting for 57% of the full-year FY24 forecast—but also showcased significant margin expansion across its business segments.

Key Highlights & Strategic Outlook

• Robust Margin Expansion: The company’s shipping segment enjoyed an increase in gross margins from 40.5% in 1H24 to 46% in 2H24, while the shipbuilding segment saw margins expand from 25.9% to 29.7%. Factors such as a favourable FX environment and the benefit of falling steel prices underpinned these improvements.
• US\$6 Billion Order Win Target: Management is confident in securing US\$6 billion worth of orders in FY25, buoyed by available yard capacity and persistent industry demand. Despite a noted slowdown in enquiries post large orders in 2024, the existing order book keeps the yards fully booked until 2027.
• Dividend Upgrade: Reflecting its strong financial position, the proposed dividend has been raised to 12 cents (with a payout ratio of 39%), compared to the previous 6.5 cents (34%) in FY23.
• Capacity Expansion Initiatives: Projects such as Hongyuan (Xinfu yard) are slated to commence first delivery in 2027, while Project Runze is in the planning stage for expanding capacity to construct large LNG carriers and dual-fuel containerships.
• Stability Amid Market Dynamics: While FY25 revenue is expected to remain relatively stable as the yards operate at maximum capacity, margin expansion is foreseen to continue supporting profitability.
• Risks: The report identifies downside risks including potential surges in steel costs, order cancellations, and potential punitive measures by the U.S. government targeting Chinese shipbuilding.

Financial Performance & Key Ratios

Yangzijiang Shipbuilding’s strong financial performance is reflected in the following notable metrics:

• Revenue & Profit: 2H24 revenues reached Rmb13.5 billion (close to 49% of the full-year FY24 forecast) with impressive margin expansion driving the net profit.
• Income Composition: Higher interest income (Rmb403 million) and FX gains (Rmb192 million) helped offset one-off impairment losses of Rmb181 million on an investment property.
• Valuation: Trading at S\$2.44, the stock carries a target price of S\$3.62, representing a compelling upside potential of 48.4%. This target is based on a forward CY26F P/E of 12x, aligned with comparable Korean and Japanese peers.
• Financial Health: Detailed forecasts indicate stability in net profit and EPS figures through Dec-23A to Dec-26F, accompanied by strong balance sheet improvements – including rising cash reserves and shareholder equity, and robust operating EBITDA margins.

Deep Dive Analysis: Yangzijiang Shipbuilding

Yangzijiang Shipbuilding’s performance in 2H24 is driven by several strategic factors. A combination of margin expansion across both its shipping and shipbuilding segments enhanced profitability, while favourable foreign exchange conditions and declining steel prices provided a tailwind in cost management. The company’s effective execution in vessel deliveries (completing 102% of its FY24 target with 64 vessels delivered) further highlights its operational discipline.

With management’s unwavering focus on filling yard capacity and securing new orders, the firm is well positioned to achieve its ambitious US\$6 billion order wins in FY25. The upgraded dividend policy underscores its commitment to rewarding shareholders while maintaining financial flexibility for future capacity enhancements. Overall, the “Add” recommendation is grounded in unwavering confidence in its solid balance sheet, continual cost advantages, and a compelling order book that extends delivery schedules well beyond 2027.

Peer Comparison & Industry Landscape

The report also benchmarks key players in the offshore and marine sector, providing a panoramic view of the competitive landscape in which Yangzijiang operates.

• Singapore Shipbuilders:
  Keppel Ltd and Capitaland Investment are highlighted with upward trajectory in target prices (Keppel’s target moving from S\$6.86 to S\$9.28) and strong market capitalization figures. This group demonstrates robust asset management and consistently improving valuation multiples.
• China-Based Companies:
  Alongside Yangzijiang, major players like COSCO SHIPPING International, China CSSC Holdings Ltd, and China Shipbuilding Industry Co are evaluated. Although these companies present varied margin profiles and market dynamics, Yangzijiang is noted for its superior margin expansion and effective capacity management.
• Korean Shipbuilders:
  Heavyweights such as HD Hyundai Mipo, Samsung Heavy Industries, and Hanwha Ocean are in sharp focus. Their performance metrics, including high return ratios and aggressive pricing strategies, offer robust comparisons to support Yangzijiang’s relative attractiveness.
• Japanese & U.S. Players:
  Entities like Mitsui E&S Co Ltd and Brookfield Corp are included to further diversify the peer perspective. Despite differences in market approaches and regulatory environments, these companies provide critical benchmarks for profitability and growth potential.
• Additional Regional Players:
  The analysis extends to companies such as Sembcorp Industries, ST Engineering, SATS Ltd, and CSE Global, among others. These firms represent a broad spectrum of the industry with varying dividend yields, growth rates, and valuation ratios that illustrate the overall health and competitive dynamics of the sector.

The rating distribution in the offshore and marine segment reflects a strong bias towards an “Add” recommendation, with 67.4% of ratings favoring new buys, 22.2% maintaining a “Hold” stance, and just 10.4% suggesting a “Reduce.” This underscores widespread optimism among analysts regarding industry prospects.

Comprehensive Financial Forecasts

• Profit & Loss Forecast: Net profit guidance from Dec-24F to Dec-26F shows steady performance with continuous growth driven by operating efficiencies and margin improvements.
• Balance Sheet Developments: The company demonstrates a strong balance sheet with rising cash reserves, prudent working capital management, and increasing shareholders’ equity.
• Cash Flow Fundamentals: With strong EBITDA figures and healthy free cash flows, Yangzijiang is well equipped to support ongoing capacity expansions and sustain dividend distribution.
• Key Ratios: Robust operating EBITDA margins, improved net cash per share, and high gross interest cover ratios further cement the company’s standing as a financially sound enterprise.

Broker Recommendation & Final Insights

The detailed analysis leads to an overall “Add” recommendation for Yangzijiang Shipbuilding. The company’s solid financial performance, strategic initiatives in capacity expansion, and an impressive order book – all underpinned by strong margin expansion – provide a compelling investment case. Trading at S\$2.44 with a target price of S\$3.62, investors are offered an attractive upside potential of 48.4% within a dynamic and competitive industry landscape.

Regulatory Disclosures & Disclaimer Overview

The report includes comprehensive regulatory disclosures and disclaimers, emphasizing that all views and analyses are derived from data considered reliable at the time of publication. It clarifies that the opinions expressed are those of CGS International, prepared independently without any conflict of interest, thereby ensuring that prospective investors are well-informed of the underlying assumptions and potential risks.

Conclusion

In conclusion, Yangzijiang Shipbuilding stands out as a flagship performer in the offshore and marine sector. Its exceptional 2H24 results, proactive dividend upgrade, solid order book that extends until 2027, and strategic capacity initiatives all contribute to its bullish outlook. When viewed against a backdrop of rigorous peer analysis across Singapore, China, Korea, Japan, and the U.S., Yangzijiang’s “Add” recommendation highlights its significant growth potential and makes a persuasive case for investor consideration in a rapidly evolving maritime industry.