Comprehensive Analysis of Yangzijiang Shipbuilding: Deep Dive into Strong Order Wins and Future Prospects

Broker: UOB Kay Hian

Date of Report: Monday, 11 November 2024

Company Overview

Yangzijiang Shipbuilding (Holdings) Ltd., established in 1956 and based in Jiangsu, China, is the largest private shipyard in the country. Specializing in a wide range of shipbuilding, including containerships, bulk carriers, and LNG carriers, Yangzijiang Shipbuilding has a robust client network spanning North America, Europe, and Asia.

Stock Data and Market Performance

Share Price: S\$2.68
Target Price: S\$3.60
Upside: +34.3%
Market Cap: S\$10,587.6 million (US\$7,994.2 million)
3-Month Average Daily Turnover: US\$42.9 million
52-Week High/Low: S\$2.73/S\$1.40

Major Shareholders:
Yangzi International: 21.6%
Lido Point Investments: 9.8%
T. Rowe Price: 6.0%

Recent Performance and Strong Order Wins

Yangzijiang Shipbuilding (YZJ) has reported strong performance for 3Q24, driven by US\$3.16 billion in new orders and shipbuilding margins remaining above 26% year-to-date. This success has resulted in a historical high order book of US\$22.14 billion as of the end of 3Q24, providing revenue visibility into 2029. Consequently, UOB Kay Hian has upgraded earnings for 2024-26 by 4-9% and maintains a BUY recommendation with a higher target price of S\$3.60.

Order Wins Breakdown

In 3Q24, YZJ secured new orders worth US\$3.16 billion, including two LNG dual-fuel 9,000 TEU containerships, twelve LNG dual-fuel 17,000 TEU containerships, and two 100,000 cbm Very Large Ethane Carriers. For the first nine months of 2024, YZJ’s new order wins totaled US\$11.64 billion, exceeding the 2024 order win estimate of US\$10 billion.

Future Order Outlook

Management has indicated that the order win target for 2025 will be higher than the US\$4.5 billion target for 2024, thanks to the impending operational readiness of the new Yangzi Hongyuan yard in 2H26. This new facility is expected to handle increased capacity and secure more significant orders.

Financial Performance and Projections

Shipbuilding Margins

YZJ’s shipbuilding margins have remained robust, with 3Q24 margins slightly higher than the 1H24 margin of 25.9%. Management is confident these margins are sustainable, citing stable steel prices fixed for 2025 and beyond.

Execution Excellence

By the end of 3Q24, YZJ delivered 57 vessels, achieving 90% of its target of 63 vessels for the year. Notably, the key highlight for 3Q24 was the delivery of the first 16,000 TEU LNG dual-fuel containership in October. YZJ’s ability to deliver vessels on time and maintain high-quality standards has been a critical factor in attracting consistent new orders, especially in light of labor unrest at some Korean yards.

Key Financials

Positive Prospects for New Yard

YZJ has secured several new orders for the new Rmb3 billion Yangzi Hongyuan yard, which will feature two new drydocks capable of constructing 12 ships per year each. One drydock will focus on large containerships (vessels larger than 12,000 TEU), and the other on gas carriers, though this may change based on market demand. Fully operational, Yangzi Hongyuan could add US\$2.0-3.6 billion in new orders annually.

Competitive Landscape

Despite additional shipyard capacity coming online in China, YZJ remains optimistic about competition. Tier 1 shipyards are fully occupied until at least 2028, indicating no expected negative impact on newbuilding prices for 2025. New yards remain unproven, and YZJ believes only time will tell if these new orders can be executed timely and with high quality.

Upgraded Earnings and Valuation

UOB Kay Hian has upgraded earnings for 2024-26 by 4-9%, driven by higher shipbuilding margin assumptions of 26% for 2024 and 25% for 2025-26. Each 1% change in shipbuilding margins increases 2025 net profit by 3.7%. The target price has been raised to S\$3.60, using a target PE multiple of 9.7x, which is one standard deviation above the company’s 10-year average of 6.9x. This premium is justified given YZJ’s earnings visibility into 2029 and its strong track record.

Share Price Catalysts

• Better capital management
• New orders in higher-margin shipbuilding segments, such as dual-fuel containerships and LPG tankers
• Continued evidence of maintaining high shipbuilding margins above 20%
• Shipowners exercising their shipbuilding options with YZJ in 1H25

Historical and Forecast Order Wins

Yangzijiang Shipbuilding has shown a remarkable trend in order wins over the years, with significant growth in recent years. The number of vessels won each year has also varied, reflecting the dynamic nature of the industry and YZJ’s ability to secure diverse types of vessels, including oil/chemical tankers, containerships, bulk carriers, and LNG/LPG/LEG vessels.

Changes to Earnings Forecasts

For 2024, 2025, and 2026, the net profit after tax (NPAT) forecasts have been adjusted as follows:

Conclusion

Yangzijiang Shipbuilding continues to demonstrate strong performance, marked by significant order wins, robust shipbuilding margins, and a promising future with the new Yangzi Hongyuan yard. With a solid financial foundation and strategic initiatives, YZJ is well-positioned for sustained growth and value creation for its shareholders. As a result, UOB Kay Hian maintains a BUY recommendation with an upgraded target price of S\$3.60.