GTT is a big deal; LNG orders incoming?
- Latest industry newsflows suggested that YZJ is in negotiation for LNG carriers. This follows its recent GTT license announcement.
- YZJ’s GTT licence allows it to build large LNG carriers, including >100,000 CBM vessels. Only 29 shipyards in the world have a GTT licence.
- Order wins, especially of LNG vessels, are key catalysts for the stock. YZJ is one of our SG country top pick. Reiterate Add and TP of S$1.63.
Potential LNG carrier orders of US$1bn-1.4bn
Tradewinds reported that Celsius Tankers is negotiating with Yangzijiang Shipbuilding (YZJ) and China Merchants Industry for 10-12 large LNG carriers worth c.US$2.8bn (or c.US$230m-280m/vessel). We understand that YZJ’s yards are full till 2024, with about 15 containerships slots left for deliveries in 2025. Assuming the orders are equally split between China Merchant and YZJ, this could add US$1bn-US$1.4bn of orders for YZJ. In our previous report, Order potential (dated 8 Sep 22), we noted that YZJ could potentially secure 16 new bulk carrier/containership orders worth US$2.29bn, though the timeline and contracts have yet to be announced by YZJ. All in, YZJ could be actively bidding for up to US$3.7bn of new orders in the pipeline. Its orderbook stood at US$8.13bn as of 1H22.
GTT licence allows YZJ to build large LNG carriers of >100,000 CBM
To recap, YZJ obtained a licence from France-based Gaztransport & Technigaz (GTT) on 8 Sep 22, which enables it to construct LNG vessels using GTT Mark III membrane technologies. We understand that the GTT license allows YZJ to build large LNG carriers of >100,000 CBM. Smaller LNG carriers of <100,000 CBM do not have this GTT requirement and are typically built with independent tanks that are either semi-refrigerated or insulated. In 2017, YZJ delivered two 27,000 CBM LNG/LPG/ethelene carriers for Evergas with a total newbuild contract value of US$135m. These vessels were built on cylindrical horizontal semi-refrigerated tanks.
120 LNG carriers on order YTD vs. 78 units in 2021
According to Clarksons, 120 of LNG carriers newbuild contracts have been awarded in 2022 YTD, vs. a total of 78 vessels in 2021. Prices for 174k CBM LNG carriers have inched up by c. 6% yoy to c. US$214m/vessel. Korean shipbuilders command the largest market share of LNG and LPG carriers (67%), followed by Chinese shipbuilders (22%; of which Jiangnan Shipyard Group and Hudong Zhonghua have 8% each). The delivery slots for the latest Sep 22 orders by Daewoo DSME and Samsung HI are scheduled for 2025/2026. We believe YZJ’s availability in 2025 could be a plus. Out of 8 GTT-licensed shipyards in China, only 2 are non-state-owned enterprises (SOEs), the other non-SOE being WISON Offshore & Marine (WOM), which is mainly involved in rigs (i.e. not YZJ’s direct competitor).
Trading at 0.99x CY23F P/BV vs. Koreans at 1.39x; Add, TP S$1.63
We think securing of LNG orders could narrow YZJ’s discount to Korean peers. Our TP is based on 10x CY23F P/E (2-year average). Key risk: order cancellation.