Excerpts from CGS-CIMB report
Analyst: Lim Siew Khee
| Yangzijiang Shipbuilding Rising tide ■ Encouraging rise in ocean rates and positive outlook by liners could spur newbuild orders. YZJ’s c.U$700m orders YTD are on track to hit US$1.1bn.
■ The stock is cheap at 0.5x P/BV and 5x P/E ex-cash. Add. Our SOP-based TP implies c.0.8x CY20F P/BV (-0.5 s.d. of mean). New orders are catalysts. |
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Strong uptrend in ocean freight spot rates
The strong uptrend for Transpacific spot rates since Jun 2020 may suggest that demand is matching capacity deployment.
In Sep 20, riding on the traditional year-end peak season, SCFI (Shanghai Containerized Freight Index) Shanghai to West Coast America rose c.170% yoy to an all-time high since 2009 of US$3,831/FEU and Shanghai to East Coast America up c.87% yoy to a high of US$4,590/FEU since 2015.
Shanghai to Europe also reached a modest high of US$1,085/FEU (+66% yoy). Panamax grain bulk carriers also staged a recovery to pre-Covid average of US$32.3/tonne in Sep 2020. 
Maersk revised guidance (again)
In the latest trading update for 3Q2020, Maersk raised its FY20F EBITDA to US$7.5bn8bn (previously US$6bn-7bn) citing slightly better than anticipated volumes in ocean in 3Q20 (-3% yoy vs. mid-single digit contraction).
Preliminary revenue rose 10% qoq to US$9.9bn in 3Q20F on continued recovery in demand across businesses and initiatives to improve costs.
This is its second guidance upgrade in 2020 which signals firm demand recovery to us.
Order momentum to gradually catch up, US$1.29bn of options
YTD, YZJ has secured c.US$700m of orders, in line with our US$1.1bn target for 2020, or up 33% yoy, defying the disruptions of Covid-19.
From the 2020 orders won, there are options for another 22 vessels, amounting to c US$1.29bn to be exercised in 2020-2021, in our view.
Improving earnings among shipowners could accelerate these options.
3Q20F preview: stable qoq profit (results: 4 Nov)
With yard operations unchanged qoq, we expect YZJ to deliver at least 15 vessels in 3Q20F and steady qoq net profit of Rmb700m-750m, relatively stronger than its Singapore peers.
Shipbuilding gross margin appears likely to normalise to c.16-18% in 3Q20F (2Q: 22%) on the absence of vessel resale gains which were present in 2Q20.
Reiterate Add, share price trades at 5x P/E ex-cash  Lim Siew Khee, analyst.Its strong net cash of Rmb4.4bn (S$0.22 per share) at end-Jun 20 should sustain above market yield of 4.3%.It is trading at new trough and undemanding valuations of 0.56x CY20F P/BV, vs. ROE of 9%. On an ex-cash basis, it trades at 5x CY21F. In Sep-Oct, YZJ bought back 25m shares or c.S$24.2m. Our SOP valuations peg its assets held to maturity at 1x FY20F P/BV and shipbuilding at 0.7x CY20F BV. Second wave is key risk. |
Full report here.
