Yangzijiang Shipbuilding - More Clarity On Yard Expansion Plans During KL NDR
YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)
- Yangzijiang Shipbuilding (SGX:BS6) said it does not need to expand capacity to execute its current order book of US$10.33bn. Yangzijiang Shipbuilding currently has two 175,000 CBM LNG carriers on order at Xinfu yard for delivery in 2025-26. However, if there is a build-up of LNG carrier orders of 10 units or more, management could consider capacity expansion into an adjacent land at its Xinfu yard, which could cost ~Rmb2.5bn (to be constructed over two years).
- On full capacity, the new yard could add delivery of 5 LNG carriers p.a. Yangzijiang Shipbuilding’s current yard capacity is full until end-2025 but Yangzijiang Shipbuilding guides that there are 3-5 premium slots reserved for LNG carriers/oil tankers for 2025/early-2026 deliveries.
- We think Yangzijiang Shipbuilding is capable of funding internally and still maintain its net cash position, as it had a net cash of ~Rmb3.7bn at end-1H22. Yangzijiang Shipbuilding is on track to deliver 70 vessels by end-FY22F (all-time high), but we expect YZJ to deliver <70 vessels in FY23F since these vessels are larger.
- What other catalysts to look out for?
- Firstly, we believe higher-than-expected gross margin due to lower steel costs and favourable forex impact from weaker RMB/US$ could be a near-term catalyst for Yangzijiang Shipbuilding. With steel price retracing 25% since May 22, we believe margin expansion could start to kick in by 4Q22F. Steel accounts for 25% and 35% of containership and bulk carrier costs respectively.
- Secondly, we believe Yangzijiang Shipbuilding's order win guidance is conservative at US$2bn for 2023F. We believe the premium slots reserved could set Yangzijiang Shipbuilding ahead of the Korean yards that are full till end-2026. Sustained LNG carrier market post winter could be a game changer for Yangzijiang Shipbuilding.
- We believe Yangzijiang Shipbuilding could keep its absolute FY22F dividend at S$0.05 (34% payout) even after the spin-off of its debt securities business. We see room for higher payout of 40%.
- We maintain ADD rating on Yangzijiang Shipbuilding as we see earnings visibility until FY26F. Our target price is based on 1.65x CY23F P/B (30% premium to regional 3x average due to stronger margin track record).
- Risks include a steep rise in steel costs and sharp US$ depreciation hurting margins, and order cancellations and a steep decline in freight rates affecting potential newbuild orders and chartering.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
LIM Siew Khee CGS-CIMB Research | Izabella TAN CGS-CIMB Research | https://www.cgs-cimb.com 2022-12-01
Previous report by CGS-CIMB:
2022-11-14 Yangzijiang Shipbuilding - Prudent Approach In Expansion.
Price targets by 2 other brokers at Yangzijiang Target Prices.
Listing of research reports at Yangzijiang Analyst Reports.
Relevant links:
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