Brokers' take: Analysts reiterate 'buy' on Yangzijiang after contract wins

ANALYSTS from CGS-CIMB, DBS Group Research and UOB Kay Hian have reiterated their "buy" calls on mainboard-listed Yangzijiang Shipbuilding after the Chinese shipbuilder on Monday said it recently bagged new orders worth some US$1.3 billion.

Among the three, DBS is the most optimistic with a target price (TP) of S$1.40, followed by CGS-CIMB with a TP of S$1.37, and UOB Kay Hian with a TP of S$1.17.

Shares in Yangzijiang closed at S$1.04 on Tuesday, up 6.5 Singapore cents or 6.67 per cent, with 80.7 million shares changing hands.

In an exchange filing on Monday night, Yangzijiang said it had secured agreements to build and deliver 29 vessels, including 22 containerships.

DBS analyst Ho Pei Hwa told The Business Times on Tuesday that these probably represent the largest contract wins secured in a month since the 2007 "supercycle", and indicate a buoyant newbuilding market.

"This is an acceleration from US$510-560 million orders a month that we saw in November/December 2020 and the typical US$500-800 million orders a quarter during a mini upcycle," she added.

Yangzijiang beat the street's order expectations of US$1-1.5 billion last year, closing the year with US$1.8 billion new wins despite the pandemic, Ms Ho noted.

"We are only into the second month of the year, and it has met 65 per cent of its annual order target of US$2 billion and 52 per cent of our higher expectation of US$2.5 billion.

"We expect more containership orders to flow through in H1 and potentially bulk carrier orders towards H2. Taking cue from the strong momentum, we are likely revising up our order wins assumption to more than US$3 billion this year," Ms Ho added.

DBS noted that Yangzijiang is an "underappreciated proxy to the shipping boom", trading at an attractive valuation of less than 0.6-time price to book value, against an 8 per cent return on equity and a 4 per cent dividend yield.

Separately, CGS-CIMB said that among the latest orders is a first-time win from Shanghai Zhonggu Logistics, one of the largest domestic shipping liners in China, for 10 units of 4,600 twenty-foot equivalent unit (TEU) containerships.

"We are positive on the fact that Yangzijiang is making firm inroads with Chinese companies and competing head-on with state-owned yards," wrote CGS-CIMB analyst Lim Siew Khee in a research note on Tuesday.

Echoing this bullish sentiment is UOB Kay Hian analyst Adrian Loh, who noted that Yangzijiang's order wins of US$1.3 billion thus far represents 72 per cent of his conservative target of US$1.8 billion for the year.

READ MORE: Hot stock: Yangzijiang soars 6.7% on new orders worth US$1.3b