 • Two seasoned analysts have been covering Singapore-listed Yangzijiang Shipbuilding for a long time -- but their latest reports differ somewhat but agree on key points. • Adrian Loh (head of research at UOB Kay Hian) and Lim Siew Khee (head of research (Singapore) of CGS International) both highlight the company's strong performance and present optimistic views on the company's prospects. |
| Target Price and Valuation |
Adrian maintains a more bullish stance with a new and higher target price of S$3.60, indicating a potential upside of 34.3% from the current price of S$2.68.
 "YZJ remains inexpensive relative to its regional peers, trading at 2025F P/B of 1.6x with a forecast ROE of 25% while its Korean peers trade at 1.6-2.6x P/B with lower ROEs of 9-14%."-- Adrian Loh, UOB KH |
This is based on a price-to-earnings (P/E) multiple of 9.7x. He justifies this due to YZJ's strong earnings visibility into 2029 and its robust order book.
Siew Khee is more conservative with an unchanged target price of S$3.20, based on 11x P/E for FY26, which is in line with regional peers.
Despite the lower target price, she highlights that YZJ trades at a discount compared to Chinese peers, which have higher P/E ratios but lower returns on equity (ROE).
| Order Wins and Revenue Visibility |
Adrian highlights YZJ’s record-high order book of US$22.14 billion, providing revenue visibility until 2029.
He expects further order growth in 2025, estimating US$6 billion-US$7 billion due to the upcoming capacity from the new Yangzi Hongyuan yard.
Siew Khee sets a slightly lower target for FY25 order wins at US$5.5 billion.
She notes that the new yard expansion will add capacity for mid-sized vessels, which could drive future order growth.
| Margins and Profitability |
Adrian is optimistic about YZJ’s margins, noting that shipbuilding margins have remained above 26% year-to-date (YTD) in 2024, with management confident about sustaining these levels into 2025-2026 due to stable steel prices.
He upgraded its earnings forecasts for 2024-2026 by 4-9% based on higher margin assumptions.
 "Given similar operating environment and better ROE (27%), YZJSB trades at a discount of 9x CY26F vs. Chinese peers’ 15x (ROE: 5%). Reiterate Add with an unchanged TP of S$3.20 (11x CY26F P/E)."--Lim Siew Khee, CGS International |
Siew Khee shares a similar view on margins for FY24, forecasting gross shipbuilding margins at 27%.
However, she turns more cautious about FY25, predicting a dip to 26%, driven by a shift in the delivery mix towards lower-margin oil tankers.
She expects this shift to impact profitability as oil tankers typically have lower average selling prices (ASPs) and margins compared to containerships.
| Product Mix and Risks |
Adrian emphasizes YZJ’s ability to maintain high margins across its diversified product mix, including green vessels and LNG carriers.
He does not express significant concern over the shift in product mix.
Siew Khee, in contrast, highlights potential risks associated with YZJ’s changing delivery mix from containerships to oil tankers starting in FY25.
She notes that oil tankers are expected to make up around 32-43% of deliveries by 2027, which could weigh on overall margins due to lower ASPs.
| Legal and Operational Risks |
Both analysts take note of an ongoing arbitration case involving YZJ over alleged breaches of containership contracts.
However, neither sees this as a major risk, with YZJ’s legal advisors signalling the unlikely event of a significant financial impact.
| In summary, Adrian is more optimistic overall, particularly regarding future order wins and sustained high margins, leading to a higher target price. Siew Khee is more cautious, particularly concerning margin compression due to the changing product mix towards oil tankers in FY25 and beyond. Both analysts agree on YZJ’s strong fundamentals but differ in their outlooks on how shifts in product mix and external factors might affect profitability in the medium term. |
