YANGZIJIANG finally gets Seaspan contracts - what do analysts say?

Yangzijiang's latest contract win is worth up to US$2.5 billion, a sizeable achievement considering that last year, Yangzijiang secured 50 new shipbuilding contracts worth US$1.38 billion. NextInsight file photo

FINALLY! Nearly three months after speculation swirled, Yangzijiang Shipbuilding confirmed it had secured shipbuilding contracts worth up to US$2.5 billion.

It said it had inked a US$0.7 billion with Seaspan Corporation on 8 June 2011 to build seven units of 10,000 TEU containerships.

There are options for additional 18 units of identical vessels. If all 18 options are exercised, the total estimated value of the twenty-five units of 10,000 TEU containerships is expected to be US$2.5 billion, said Yangzijiang.

The first seven new vessels are scheduled for delivery in 2014 and 2015.

This newly developed container vessel type is fuel-efficient in nature and its proprietary designs meet the current demand for larger capacity vessels with lower emission and eco-friendly, said Yangzijiang.

Seaspan Corporation is a leading independent charter owner of containerships, listed on New York Stock Exchange, with a fleet of 69 modern large and super-large container vessels.

Read our story in March on this Seaspan contract: YANGZIJIANG: A record US$2 billion contract to be inked in April/May?

Excerpts from analyst reports this morning ...


CIMB's Lim Siew Khee:  We see this win as a major milestone for YZJ as it climbs up the value chain with larger vessels, competing heads on with the Korean yards. YZJ could also snare more orders from other customers as ship owners scale up their capacity to larger vessels.

Since our downgrade on 29 Apr to Neutral, YZJ’s share price has retreated 20%. We see this as a buying opportunity.

Current valuation of 8x CY12 P/E appears attractive against Singapore’s mid-cap offshore companies (10x) and its own historical average of about 11x since listing. We anticipate stock catalysts from the potential exercise of options by Seaspan and more orders from other customers, and upgrade YZJ to Outperform, although we continue to see the magnitude of its financial assets as a key risk. We keep our target price of S$2.05, still based on 14x CY12 core shipbuilding earnings.


DMG & Partners' Jason Saw: The latest order win lifted its YTD order win to around US$1.2b (RMB7.85b) and gross order book to US$6.1b (RMB40b), implying 2.5x FY11F revenue.

No changes to our EPS estimates. Stock is now trading at 9.3x FY11 P/E. We continue to like YZJ given its high order visibility and superior execution but believe our TP (based on 15x FY11 P/E) is too aggressive given weaker-than-expected order outlook from the bulk segment.

Hence, we lower our TP from S$2.47 to S$1.98 based on lower target P/E of 12x. Maintain BUY.


Credit Suisse's Gerald Wong & Christopher Chang: We believe the weak share price performance of Yangzijiang YTD is due mainly to concerns about corporate governance of Singapore-listed Chinese companies. In our view, Yangzijiang has been unduly punished by these market concerns given its credible management team and strong business fundamentals.

At 2011E P/E of 9.0x, Yangzijiang is trading at 0.5 standard deviation below its historical average. We maintain our OUTPERFORM rating and target price of S$2.40.


UOB Kay Hian's Nancy Wei & Lawrence Li: The order shows YZJ’s excellent reputation in building mid-to-large size containerships and proven order execution as 10,000 TEU containership is previously dominant by Korean and Taiwanese shipyards.

YZJ has done sufficient preparation including cooperation with CSBC and hiring senior and middle-level management with experience in building large-size containerships. We maintain BUY on YZJ with target price of S$2.66, based on 15x 2012F P/B. YZJ deserves valuation premium to other Chinese shipyards as a pioneer to compete with Korean yards in terms of building high-end vessels.