YANGZIJIANG: Sails through storm to deliver record profit, record dividend

THE CONTEXT • Feb 2025, a good 12 months ago -- a classic "knee-jerk" reaction by investors happened when the Trump administration proposed port fees on Chinese vessels. Investors dumped Yangzijiang Shipbuilding shares, sending the price tumbling from over $3 to under $2 in just two months. • The panic lacked logic. Yangzijiang builds ships; it does not operate them. It has no direct exposure to the freight rates or port fees of vessels traveling to the U.S.  • Over the ensuing months, two things happened: Adaptability: Ship owners simply reallocated their fleets to mitigate the fees. Dilution: The proposed draconian fees were eventually watered down, as reality triumphed over Trump's rhetoric. • Yangzijiang bought back 15 million shares and as the dust settled, the shipbuilding orders returned. Yangzijiang's stock price, having swung too low, began its inevitable journey back up and eventually surpassed its pre-Feb 2025 high (see chart below). • Yangzijiang's FY2025 profit growth was intact on top of which the Singapore-listed company declared a high final dividend of S$0.20 (FY2024: $0.12), and analysts reckon this level is sustainable for both 2026 and 2027.  • Read excerpts of UOB KH's report below ....

Excerpts from UOB KH report

Analyst: Adrian Loh


Yangzijiang Shipbuilding 
2025: In A Multi-Year Earnings Visibility Phase

Yangzijiang's stock price had been rising with rising profits in recent years, until the US threatened, in Feb 2025, high port fees for Chinese-built ships. The stock has recovered nicely.
 

• Handily beating estimates. Yangzijiang Shipbuilding (YZJ) delivered a strong 2025 performance with revenue of Rmb28.5b (+7.4% yoy) generating PATMI of Rmb8.64b (+30.2% yoy) as shipbuilding margins continued to expand on a yoy basis. 

In 2025, YZJ recorded its highest shipbuilding margin since its IPO in 2007 at 35.1%, a yoy expansion of 7.2ppt that was supported by stronger shipbuilding execution, improved operating leverage and favourable contract pricing dynamics, particularly for steel.

• Generous dividends at last. YZJ declared a final DPS of S$0.20, a 67% increase from the S$0.12 from 2024.

Representing a payout ratio of 50%, YZJ stated that this level should be sustainable for both 2026 and 2027, highlighting its confidence in the execution of its orderbook and cash flow generation.

As a result, we have raised our payout ratio to 50% for 2026-27.


• Order wins and 2026 outlook. Despite a difficult 1H25 as a result of Trump’s perplexing policy, YZJ nevertheless managed to secure US$2.5b of new orders, which lifted the outstanding orderbook to US$22.4b.

Importantly, these 245 vessels provide earnings visibility through to 2030.

Management highlighted improving ordering momentum, with global newbuild orders rising 27% yoy in Jan 26, driven by fleet replacement demand.

For 2026, YZJ has pulled back its order win target from US$6.0b to US$4.5b with some remaining slots for 2029 and opening 2030 positions.


• Fine-tuning our earnings. Our earnings estimates for 2026 have seen a mild 1% downgrade while 2027 earnings have been raised by 2% to incorporate a 2-3ppt increase in shipbuilding margins for both years; meanwhile, associate contribution and trading profits have been cut.

Valuation/Recommendation    ● We maintain our BUY rating with a PE-based target price of S$4.60 (previously S$4.10). "We highlight that YZJ is the only stock in the Straits Times Index that currently trades at a single-digit PE multiple but still delivers a yield of >5% and generates an ROE of >26%." -- Adrian Loh, analyst We peg the company’s 2027 EPS to a target PE multiple of 10x which is 2SD above the company’s past 10-year average. We view our target PE multiple as inexpensive given the quality of the company’s earnings, cash flow generation and ability to pay a sustainably higher dividend for 2026 and 2027. • At our target price, YZJ would trade at an inexpensive 2026F PE of 10.7x while delivering a yield of 4.6%. We highlight that YZJ is the only stock in the Straits Times Index that currently trades at a single-digit PE multiple but still delivers a yield of >5% and generates an ROE of >26%

→ Full UOB KH report here.

→ See also: YANGZIJIANG SHIPBUILDING: Goldman Sachs Initiates ‘Buy’ And $4 Target On Earnings Boom Amid Industry Upcycle