Sailing Towards A Strong Year On Multiple Fronts
YZJ’s 3Q23 business update indicated that the company remains on track to have another strong year for profits and new order wins, backed by an excellent track record in vessel deliveries. In 9M23, new orders for tankers have overtaken containerships. However, new global emissions standards could provide continued impetus for new orders in 2024. Maintain BUY. Raise target price to S$1.92.
WHAT’S NEW
• No surprises with solid outlook intact. Yangzijiang Shipbuilding (YZJ) provided a solid 3Q23 business update, guiding that revenue trends thus far have been on track and should not provide any negative surprises to the market for the full year. Operationally, the company maintained its solid track record in delivering on its projects with two 24,000TEU containerships delivered to the Mediterranean Shipping Company being the key highlight for 3Q23.
• Continues to experience strong order-win momentum. As expected, order win momentum continued in 3Q23 with US$770m in new orders. This has resulted in ytd orders worth US$6.54b, well ahead of the company’s admittedly conservative guidance of US$3b and in line to possibly exceed our estimate of US$7b.
• A new phenomenon of surging tanker demand. As presaged by management earlier in the year, YZJ has experienced very strong order wins for oil tankers this year with this segment making up 43% of the company’s total order wins in 9M23 vs zero orders for such vessels in 2022. The company believes that, heading into 2024, the tanker market will remain buoyant and could see more order flow come through, driven by replacement of older vessels which do not meet new supra national emissions standards.
• Containership outlook not as bad as feared. During the analyst briefing, YZJ’s CEO stated that while there is a meaningful supply of containerships in the next 2-3 years, the new order outlook remains reasonably solid given that new IMO regulations will drive the deeper adoption of dual-fuel LNG vessels. At present, the extremely high price of green methanol has led to a pause on orders for methanol-fueled vessels and, combined with the relatively limited supply chain for methanol, the focus is back onto LNG given the wide existence of its supply chain and reliable technology. As a result, YZJ believes that it remains in a strong competitive position to benefit from new orders, and will focus on high margin and high value ships in 2024, ie dual fuel containerships and tankers.
