Yangzijiang Shipbuilding - DBS Research 2022-08-10: Stronger Earnings Ahead And Still Cheap

Yangzijiang Shipbuilding - Stronger Earnings Ahead And Still Cheap

  • Yangzijiang (SGX:BS6)’s shipbuilding related net profit rose 32% y-o-y to RMB1.17bn in 1H22, on revenue growth of 70% y-o-y. This formed ~48% of our full year estimate.
  • There were 35 vessels delivered in 1H22, compared to 23 vessels in the same period last year, on track to make record deliveries of 70 vessels this year.
  • Shipbuilding gross margin improved sequentially to ~12.8% in 1H22, 2ppts higher than 10.8% in 2H21, though still slightly lower than 13.5% in 1H21, as group executed the remaining lower margin old projects, and impacted by high steel price and weaker US$ (which offset by forex gains below the gross profit line) during the period.
  • Nevertheless, revenue and margins are expected to expand further, on execution of mostly higher value and margin new orders secured since end 2020 from 2H22 onwards especially into 2023 when Yangzijiang recognizes the bulk of the profits closer to delivery of these vessels. In addition, the recent favourable forex and steel cost also bode well for further margin expansion in 2H22. The bulk of these orders has factored in high steel prices of over RMB6000/t and the company has hedged its US$ exposure at RMB6.6-6.8.
  • Yangzijiang's management expressed confidence on earnings growth ahead with gross margins climbing steadily and probably reaching a new high in this cycle.
  • Shipping segment contributed meaningfully with gross profit growth of 26% y-o-y, driven largely by charter rate improvement and fleet expansion. Gross margin was firm at ~40%.

Yangzijiang - Earnings forecast revision

  • We have revised up our FY22/23 profit forecasts for Yangzijiang by 11% / 3% on higher forex gains in 1H and better margins ahead.
  • Healthy year-to-date wins of US$1.09bn, on track to meet its annual target of US$2bn. As it is already filling up delivery slots for 2025, Yangzijiang is more selective on orders ahead given the relatively full order backlog and potential to negotiate for higher newbuild prices.
  • Yangzijiang’s orderbook stood at US$8.1bn as of end June 2022. Based on Yangzijiang’s revenue maximum run rate of ~US$2.8bn a year, current orderbook implies ~2.9-years revenue coverage, which is at the upper end of its ideal range of 2-3x.

Net cash of ~20 cents + financial assets worth 11 cents.

  • Though the bulk of the investment and cash on hand have been transferred to the separate investment listing (Yangzijiang Financial (SGX:YF8)) in end Apr-22, Yangzijiang’s balance sheet remains very healthy. As of end Jun-2022, Yangzijiang has ~Rmb3.7bn net cash or ~S$0.20 per share.
  • In addition, there remains a small portion of non-performing debt investments and financial assets of RMB2.3bn or S$0.11 per share sitting on Yangzijiang’s book, which it will try to recoup.

Yangzijiang's ESG strategy

  • Yangzijiang has set out a two-pronged decarbonisation strategy:
    1. Green factory strategy – installation of rooftop solar panels, enhance management of water and electricity, and improve efficient usage of steel;
    2. Green vessel strategy – continuous efforts in R&D and progress in development of clean energy vessels.
  • Yangzijiang now has ~US$2.3bn worth of clean vessels (LPG / Liquefied Ethylene Gas (LEG) carriers and LNG dual fuel containerships), making up ~30% of orderbook. The recent order of LNG dual fuel containerships that will carry the GTT Mark III technology and Liquefied Ethylene Gas (LEG) carriers showcases Yangzijiang’s growing focus and expertise in the LNG market.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.

Pei Hwa HO DBS Group Research | https://www.dbs.com/insightsdirect/ 2022-08-10
SGX Stock Analyst Report BUY MAINTAIN BUY 1.40 UP 1.380

Read also DBS Research's most recent report:
2022-11-15 Yangzijiang Shipbuilding - Embracing ESG To Propel Growth

Target prices by 2 other brokers at Yangzijiang Target Prices.
Listing of broker reports at Yangzijiang Analyst Report.

Relevant links:
Yangzijiang Share Price History,
Yangzijiang Announcements,
Yangzijiang Dividends & Corp Actions,
Yangzijiang News Articles


SGX Stock / REIT Search


Trust Bank Referral Code