<News Analysis> Scaling new heights with largest ever quarterly contract wins
- 2Q order wins totaled a whopping US$4.4bn, a record high quarterly order win that blew past street expectations
- This lifts YTD wins to US$5.6bn, nearly double of US$3bn order target set for 2023; orderbook raised to all-time high of US$14.6bn, providing revenue visibility through 2027
- Room for earnings upgrades; potential yard expansion to expedite deliveries, in our view
- The surprise big wins shall rejuvenate the muted share price performance; Attractive valuation and yield; Reiterate BUY and TP S$1.70
What has happened
Largest ever quarterly order win. Yangzijiang (YZJ) released update on 2Q contract wins, which totaled a whopping US$4.4bn, the largest ever quarterly order wins. This consists of 46 vessels including containerships, bulk carriers and oil tankers. Of which, six were methanol dual fuel containerships from Maersk, which were their first orders for the cleaner methanol-fueled vessels (vs the more common LNG dual-fuel), signifying their product expansion and technological advancement.
Our view
YTD wins nearly double of full year guidance; breathing life into the stock. The huge order wins of US$4.4bn in 2Q was mind-blowing as market widely expected contracting activities to slow down from high of US$7.4bn in 2021 and US$4.4bn in 2022 towards guidance of US$3bn, considering the hefty order backlog. YTD wins of US$5.6bn, is nearly double of order guidance. We believe this should rejuvenate its muted share price performance and unwarrantedly low valuation of 8.5x FY23 PE and 1.35x PB (below industry average of 1.6x PB), despite superior financials of 16% earnings CAGR, ROE of 17-18%, and 4-5% dividend yield.
Room for earnings upgrades. The all-time high orderbook of US$14.6bn, will keep the yard busy through 2027, providing over 4 years of revenue visibility. We surmise that the likelihood of them expanding current capacity and expediting delivery are increasing with the huge order intakes in 2Q. In addition, we could also expect further yard efficiency and productivity gain. These could prompt the street to upgrade earnings for next 2-years especially if margins surprise on the upside in the upcoming 1H23 results. Our current forecast factored in shipbuilding margins to improve from 13.5% in 2H22 towards 18.8% this year and half-yearly profit to rise from Rmb1.3bn to Rmb1.6bn. Our numbers are largely in line with consensus for FY23 and 6% ahead for FY24F.
Buffer for cost risk. Forex and steel cost are two key moving parts that could potentially impact margins. Based on our estimate, YZJ’s contract prices seems quite in line with market prices shown in Clarksons. Newbuilding prices have climbed c.36% on average from its low in end-2020, while steel prices are similar to current level. We believe reasonable buffers have been built in to mitigate cost inflationary risks.
Reiterate BUY and TP S$1.70 (based on 1.7x FY23 PB, translating to 10.8x PE)
YTD oder wins
| Date announced | Type of vessel | No. of units | Job scope | Value, Est (US$ m) |
| Feb-23 | Tankers | 10 | 50,000DWT MR tankers | 410 |
| Feb-23 | Bulk carriers | 4 | 80,000DWT Self Unloaders | 260 |
| Apr-23 | Tankers | 2 | 50,000DWT MR tankers | 82 |
| Apr-23 | Tankers | 2 | 75,000DWT LR1 tankers | 106 |
| Apr-23 | Tankers | 4 | 114,000DWT LR2 tankers | 262 |
| Apr-23 | LEG carrier | 1 | 36,000 CBM LEG | 60 |
| Jun-23 | Bulk carriers | 3 | 83,300 DWT combined carriers | 169 |
| Jun-23 | Containership (Methanol dual-fuel) | 6 | 9,000 TEU methanol dual-fuel containerships | 798 |
| Jun-23 | Containership (Methanol dual-fuel) | 4 | 950 TEU methanol dual-fuel containership | 104 |
| Jun-23 | Containership (Dual-fuel) | 10 | 24,000 TEU dual-fuel containerships | 2,315 |
| Jun-23 | Containership | 2 | 8,000 TEU containerships | 200 |
| Jun-23 | Oil Tankers | 6 | 50,000DWT MR tankers | 264 |
| Jun-23 | Oil Tankers | 4 | 75,000DWT LR1 tankers | 216 |
| Jun-23 | Oil Tankers | 1 | 114,000DWT LR2 tankers | 66 |
| Jun-23 | Bulk carriers | 10 | 82,500DWT bulk carriers | 330 |
| Total FY23 y-t-d order wins for Yangzijiang | 5,642 |
Source: Company, Clarksons, DBS Bank