<News Alert> Promising order wins
- Yangzijiang secures US$990m new order YTD, making up c.50% of their annual order win target of US$2bn
- The contract wins of LNG dual-fuel containerships, and LEG vessels showcase Yangzijiang’s growing expertise in the LNG market
- Strong earnings visibility for next 3 years, backed by historical high order backlog of >US$8bn; potentially further boosted by moderation of steel price
- Reiterate BUY; TP S$1.38
Secures US$990m new orders YTD. Yangzijiang announces that it has won orders for 16 vessels worth US$990m in total YTD, forming 40% of their annual order target of US$2bn. The new contracts comprise:
- 4 units of 1,800TEU containerships,
- 4 units of 8,000 TEU LNG dual-fuel containerships,
- 4 units of 66,000DWT and 2 units of 63,200DWT bulk carriers, and
- 2 units of 36,000 CBM Liquefied Ethylene Gas (“LEG”) carriers.
Growing expertise into LNG market. The new orders for LNG dual-fuel containerships and LEG carriers showcase Yangzijiang’s growing focus and expertise into LNG market. The dual fuel containerships are equipped with GTT Mark III membrane containment tank system, which has been co-developed in-house, demonstrates the Group’s focus in moving up the value chain to more complex LNG vessels and lays out foundation for its further business expansion. This is also part of its strategy to improve ESG with the offering of cleaner solutions.
Strong earnings visibility for next 3 years, backed by historical high order backlog of over US$8bn. Bulk of these orders has factored in high steel price of over Rmb6000/t and hedged USD at Rmb6.6-6.8. Hence, their margins could be better than expected on softening of steel prices as they progressively deliver the vessels next 3 years. In addition, over 80% of current orderbook is containership that typically fetch higher margins. During a shipping downturn or recession, one key concern would be order cancellation. Historically, Yangzijiang has relatively low cancellation rate due to strong clientele. In the event of cancellation, Yangzijiang has the financial muscle to continue building those vessels, park them in the their shipping fleet and resell at some profit when shipping market recovers. Hence, we are not overly concerned on this.
We continue to like Yangzijiang and confident of them delivering promising double digit earnings growth in our forecasts period. Valuation remains undemanding at c.1x PB against 13% ROE and 4-5% dividend yield. Maintain BUY and TP of S$1.38.