<News Alert> A good set of 1H22 results
- 1H22 profit rose 32% yoy with record deliveries of 35 vessels; shipbuilding margins rebounded to ~13%, from 11% in 2H21
- Healthy YTD order wins of US$1.1bn; Orderbook of US$8.1bn provide earnings visibility through 2024
- Balance sheet remains solid post investment spin off; net cash at ~20 Scts /share, representing 22% of book value
- Reiterate BUY; Earnings and TP of S$1.38 under review
1H22 profit rose 32% yoy. Yangzijiang’s shipbuilding related net profit rose 32% y-o-y to Rmb1.17bn in 1H22, on revenue growth of 70% y-o-y. This forms ~52% of our full year estimate.
It delivered 35 vessels in 1H22, as compared to 23 vessels same period last year, on track to make record deliveries of 70 vessels this year.
Shipbuilding gross margin improves sequentially to ~12.8% in 1H22, significantly 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 USD (which offset by forex gains below the gross profit line) during the period.
Nevertheless, revenue and margins are expected to expand further, with execution of mostly higher value and margin new orders secured since end 2020 from 2H22 onwards. 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 USD exposure at Rmb6.6-6.8.
Shipbuilding margin to bottom out from 2022
Source: Company, DBS Bank
Healthy YTD wins of US$1.09bn, on track to meet its annual target of US$2bn.
Revenue coverage of ~2.9-years. Yangzijiang’s orderbook stood at US$8.1bn. Based on Yangzijiang’s revenue maximum run rate of c. 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.
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.
Stellar Shipping performance. Shipping segment contributed meaningful with gross profit growth of 26% y-o-y, driven largely by charter rate improvement and fleet expansion. Gross remains firm at ~40%.
Net cash of ~20 Scts. Though bulk of the investment and cash on hand have been transferred to the separate investment listing (Yangzijiang Financial Holdings) in end Apr-22, Yangzijiang’s balance sheet remains very healthy. As of end Jun-2022, the group has c.Rmb3.7bn net cash or ~20 Scts per share. This represents approx. 22% of its book value.
ESG strategy. Yangzijiang has set out a two-prong decarbonisation strategy: 1) Green factory strategy – installation of rooftop solar, 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. Yard has made remarkable milestone with recent secure of LNG dual fuel containerships that will carry the GTT Mark III technology and Liquefied Ethylene Gas (LEG) carriers, showcasing Yangzijiang’s growing focus and expertise in the LNG market.
Maintain BUY; TP S$1.38. We will provide more update and review our earnings after results briefing.
