Making New Highs
Record profit in FY23
- 2H23 net profit beat street expectations on strong shipbuilding margin expansion
- Lifting FY24 order win target by 50% to US$4.5bn; raising FY24-25 forecasts by 21%
- Final dividend of 6.5 Scts translates to c.4% yield, in line with payout ratio of 33
- Reiterate BUY; TP lifted to S$2.10
A fabulous 2H23. Net profit surged 38% h-o-h and 65% y-o-y to Rmb2.4bn, beating street estimates by over 20%. The outperformance came from much stronger shipbuilding margin, widening 7.8ppt h-o-h to 25.5%, driven by higher newbuild prices as well as favourable USD and steel cost. This brings full year net profit to all-time high of Rmb4.1bn, surpassing last record profit of c.S$4bn in 2011.
Shipbuilding gross margin widened to 25.5% (+7.8ppt h-o-h) in 2H23, from 17.7% in 1H23, 13.5% in 2H22, and trough of 10.8% in 2H21. This is attributable to favourable forex and steel cost. In addition, Yangzijiang progressively executed the higher value and margin contracts secured since 2021. Revenue and margins are expected to expand further as it recognizes the bulk of the profit margin closer to delivery of these vessels. In addition, steel cost, which is expected to hover round Rmb4,000/t levels, bodes well for further margin expansion.
Secured US$1.35bn new orders YTD; raising 2024 order target by 50% to US$4.5bn. Yangzijiang has clinched orders totaled US$7.05bn in FY23 and ~US$1.35bn YTD. Management expects strong order momentum to continue and raises its order target for FY24 to US$4.5bn (from US$3bn previously), citing robust demand for clean energy vessels and higher value contracts in containership and tanker space.
Revenue coverage of over 4-years. Yangzijiang’s orderbook stood at all time high of US$14.5bn, of which 58% are clean energy vessels. Based on Yangzijiang’s revenue maximum run rate of c. US$3.3bn a year, current orderbook implies over 4-years revenue coverage, which is higher than the ideal range of 2-3x. We could expect some efficiency and productivity gain from repeated orders.
Net cash of ~55 Scts. Yangzijiang’s balance sheet remains very healthy post spin-off of investment arm. As of end-2023, the group has c.Rmb6bn net cash or ~55 Scts per share. The group has collected or sold the whole Rmb1.5bn legacy non-performing debt investment at book.
Earnings revisions. The strong 2H23 results reinforced our positive views on Yangzijiang’s earnings growth. We have tweaked our assumptions on revenue and margins. As a result, our FY24/25F earnings forecasts are raised by c.20%. Our new forecasts imply a 2-year CAGR of 13%. Accordingly, our TP is raised to S$2.10 (1.8x FY24F PB)
DPS raised to 7.5-8.5 Sct (from 6-7 Scts previously) following earnings revisions, still based on similar 33% payout ratio. This implies 4.3-4.9% dividend yield. We believe there is room for upward revisions of payout ratio. Assuming a 40% payout, DPS could be lifted to 9.0-10 Scts during the period, implying a 5.2-5.7% dividend yield.
