<News Analysis> Whopping contracts totaled US$2.5bn; The best is yet to come
- Secured whopping contracts totaled US$2.5bn, lifting YTD wins to US$3.6bn; orderbook expanded to US$10.3bn, implying 3.4years revenue coverage
- Next key catalyst – maiden order for LNG carriers; potentially up to 12 orders from Celsius Tanker; Plans to expand capacity signal confidence on winning more LNG carriers
- Room for earnings upgrades on both revenue and margins
- Undervalued gem; Reiterate BUY and TP S$1.40
Yangzijiang has secured new orders for 22 vessels worth approx.US$2.5bn. This includes 12 units of 16k TEU dual-fuel containerships, which we believe is from Mediterranean Shipping Company, that was reported on Tradewinds and highlighted in our Yangzijiang report in early Sept-22. In addition, Yangzijiang has also clinched some small-to-mid sized bulk carriers orders – 6 units of 66k DWT bulkers and 4 units of 32k DWT bulkers.
Together with the 18 vessels secured in 1H22, total new orders won YTD amounted to US$3.6bn. Orderbook is also lifted to US$10.27bn, from US$8.13bn as of Aug-2022, implying revenue coverage of~3.4-years.
Yangzijiang’s YTD order wins:
| Date announced | Type of vessel | No. of units | Job scope | Value, Est (US$ m) |
| Jul-22 | Containership | 2 | 1.8k TEU containerships | 990 |
| Jul-22 | Containership | 2 | 1.8k TEU containerships | |
| Jul-22 | Containership (Dual) | 4 | 8k TEU LNG dual-fuel | |
| Jul-22 | Bulk carrier | 4 | 66k DWT bulk carriers | |
| Jul-22 | Bulk carrier | 2 | 63.2k DWT bulk carriers | |
| Jul-22 | LEG carrier | 2 | 36k CBM Liquefied Ethylene Gas (“LEG”) carriers | |
| Aug-22 | Containership | 2 | 4.6k TEU containerships | 100 |
| Oct-22 | Containership (Dual) | 12 | 16k TEU LNG dual-fuel | 2,510 |
| Oct-22 | Bulk carrier | 6 | 66k DWT bulk carriers | |
| Oct-22 | Bulk carrier | 4 | 32k DWT bulk carriers | |
| Total FY22 y-t-d order wins for Yangzijiang | 3,600 |
What’s next? Watch for maiden LNG carrier orders… As emphasized in our report, All set for LNG Carrier orders, the award of GTT license is a critical breakthrough that paves the way for LNG carriers orders. We understand that Yangzijiang has been in talks with a handful of potential customers for LNG carrier orders. Of which, a Danish company, Celsius Tanker is reportedly close to award up to 12 LNG carriers to Yangzijiang / China Merchant Shipyard. Assuming a 5% discount to current newbuild price of c.US$240m for 174k cbm LNG carrier and Yangzijiang secures at least half of the Celsius Tanker’s potential newbuild orders, 6-12 units of LNG carriers could translate to US$1.4-2.8bn contract value for Yangzijiang.
… and potential capacity expansion. “While we are working even harder to secure our maiden type C LNG carrier, we are also looking to invest in a new production line to meet the strong demand and the market needs in the long term.” Executive Chairman and CEO, Mr Ren Letian. Yangzijiang has been very prudent in yard expansion since listing. The CEO remarks is a very strong statement, in our opinion. It underscores management’s confidence in winning LNG carriers in a big way, making it their next mainstream products to compete against its Korean peers. Judging from their past track record and efficiency, decision could be made next few months and new capacity might come online as early as 2024 and delivering vessels from 2026. This is crucial as most established LNG carrier builders are full through 2027.
Room for earnings upgrades. Bulk of the latest orders are slated for delivery in 2025, though we had earlier thought they are rather full already through 2025. It thus appears to us that Yangzijiang has further improved their efficiency and productivity, and vessels could be delivered faster than we have projected. In that case, we may have to bring forward revenue recognition and raise our revenue forecasts for 2023-2024. Looking at the favourable forex and steel cost, shipbuilding gross margins could also be better than expectation of 18-21% range.
Reiterate BUY and TP S$1.40 (based on 1.5x PB). Yangzijiang remains one of our top picks to weather the macro uncertainties. It is amongst the most well run, cost efficient and profitable shipyards in the world. Earnings delivery over next 3-years are backed by historical high order backlog with potential further upside from LNG carrier orders. Despite its wide economic moat and rosy prospects, valuation remains undemanding at 1.1x PB and 6x FY22 PE against 15-20% EPS growth, 15-16% ROE and 5% dividend yield.
