Introduction
Yangzijiang Shipbuilding (YZJSB) continues to assert its dominance in the shipbuilding sector, and with its recent strategic investments and strong financial outlook, the company presents an attractive investment opportunity for potential investors. In this report, we will analyze the company’s recent performance, financial health, and key catalysts that make it a compelling buy recommendation. This analysis will also discuss the company’s stock impact, valuation, risks, and price targets for a more comprehensive investment strategy.
Investment Recommendation
We recommend a “Buy” for Yangzijiang Shipbuilding, reiterating our “Add” rating. The stock presents an upside potential of approximately 29% from the current price of S$2.48 to the target price of S$3.20. This is backed by strategic acquisitions, a robust order book, and favorable market conditions in the shipbuilding industry. Investors are advised to buy on any price weakness.
Investment Thesis
Yangzijiang Shipbuilding’s growth story is driven by its recent acquisition of a 34% stake in Tsuneishi Group (Zhoushan) Shipbuilding Co., Ltd. (TZS) for Rmb833 million, acquired at an attractive valuation of 1x FY23 Price-to-Book value. This acquisition adds a pipeline of 50 vessels, including 46 bulk carriers and 4 containerships, which are valued at US$2 billion based on market prices. The relationship with TZS dates back to 2022 and offers synergies in improving supply chain management and boosting margins.
Furthermore, YZJSB’s expansion at Xinqiao Park, projected to deliver 5-6 vessels per year, adds significant growth potential. The company has a solid order win expectation, with estimated future orders totaling US$11.3 billion in FY24, US$5.2 billion in FY25, and US$5.2 billion in FY26. These orders are expected to drive both revenue and margin growth, positioning YZJSB favorably against regional peers.
Detailed Company Analysis
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Financial Results and Stock Impact:
Yangzijiang Shipbuilding reported strong growth, with net profits projected to grow from Rmb5,763 million in FY24 to Rmb6,333 million in FY25. The company’s earnings per share (EPS) is expected to increase by 9.9% in FY25, making it an attractive growth stock in the industry. YZJSB currently trades at 8.3x CY25 forward Price-to-Earnings (P/E) ratio, which is significantly lower than Chinese and Korean yards, which trade at 22x and 15x, respectively. This favorable valuation creates a potential upside for investors looking for a value stock in the shipbuilding industry.
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Earnings Revisions and Risks:
While YZJSB has shown strong growth prospects, key risks include rising steel prices, potential order cancellations, and geopolitical uncertainties, particularly in the U.S.-China relations, which could impact new order wins. However, the company is expected to mitigate these risks through efficient supply chain management and a diversified client base, including customers from Japan and Greece.
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Valuation:
The stock is currently undervalued, with a Price-to-Earnings ratio of 8.3x CY25F, compared to its regional peers trading at 22x. This offers a significant opportunity for capital appreciation. Additionally, YZJSB’s recurring Return on Equity (ROE) is forecasted at 23.4% in FY25, further solidifying its financial strength and attractiveness to investors.
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Share Price Catalysts:
Key catalysts for Yangzijiang’s stock price include the successful completion of the Xinqiao Park yard expansion by the end of 2024 and stronger-than-expected margin expansion due to improved supply chain management with TZS. The company’s significant order book and potential for higher-than-expected vessel deliveries also present potential upward revisions to earnings estimates.
Financial Targets
- Target Price: S$3.20
- Stop-Loss Price: Not specified.
- Upside Potential: 29%
Recommendation Date: September 12, 2024
Broker Information: This report is issued by CGS International Securities Pte. Ltd.
Conclusion
Yangzijiang Shipbuilding remains a leading force in the shipbuilding industry, with strong financials and robust growth potential. With a significant order book, ongoing strategic expansion, and attractive valuation, YZJSB is a top pick for investors seeking exposure to the offshore and marine sector.
