Excerpts from UOBKayHian report
Yangzijiang Shipbuilding (SGX: BS6)
- Yangzijiang Shipbuilding (YZJ)’s record performance in 1H23, with net profit up 47% yoy to Rmb1.7b, was in line with estimates.
- While the contribution from the non-shipbuilding business fell yoy, this was more than made up for by its 17.7% shipbuilding margins that were better than our estimates.
- With the strong order win momentum in 1H23, management has guided for a quieter 2H as it works through its historically high orderbook of US$14.7b with deliveries into 2027.
Maintain BUY. Target price upgraded from S$1.65 to S$1.88.
Stellar performance with shipbuilding driving top-line
YZJ reported strong 1H23 revenue growth of 16% to Rmb11.3b, translating to a 47.3% yoy increase in net profit to Rmb1.7b.
Its core shipbuilding business reached a record-high top-line contribution of Rmb10.7b in 1H23 (+25% yoy), delivering 31 vessels with its run-rate ahead of its full-year target of 57 vessels.
Ytd, the company has won US$5.8b in new orders, comfortably exceeding its 2023 target by 192%. During the results briefing, management stated its belief that 2H23 could be quieter on the new order win front given that its yards are full until at least 1H27.
1H23 margins exceeded expectations
YZJ saw overall improvements in margins in 1H23, led by its core shipbuilding segment with a GP margin of 17.7% (+4.9ppt yoy) which surpassed our full-year forecast of 14.5%.
This was due to lower material costs and favourable US$/Rmb foreign exchange rates. The company’s shipping business, however, performed poorly due to lower charter rates for its fleet of bulk carriers.
Strong balance sheet maintained
YZJ’s debt/equity was 0.28x as at end-1H23 and it had net cash of S$0.27/share, or 17% of its current share price.
Maintain BUY with a higher PE-based target price of S$1.88 (previously S$1.65). Our target PE multiple of 9.9x remains at 1.5SD above the company’s five-year average of 6.6x with the upgrade coming from higher EPS estimates for both 2023 and 2024.
We believe the premium to its average PE is justified given the company’s earnings visibility into 2027 as well as its strong track record of safe and efficient shipbuilding for its international customer base.
YZJ has an outstanding orderbook for 181 vessels worth USD14.7b as at end-1H23. We maintain our 2023 orderbook win target at US$7b.