ANALYSTS were unfazed by last week’s heavy selling of Yangzijiang Shipbuilding shares which wiped nearly a billion dollars off its value, calling the sell-off “unwarranted” and “overdone”.
The counter plunged as much as 26 per cent for the week, during which it posted earnings and – following the US Trade Representative’s (USTR) announcement on Feb 21 – proposed heavy fees for Chinese-made ships entering US ports.
As at Friday (Feb 28), the counter ended the week at a closing price of S$2.38, plunging 26 per cent from the closing price of S$3.22 on Feb 21.
The stock was weighed by massive sell-offs sparked by a USTR proposal to hit Chinese-built ships entering US ports with hefty fees as high as US$1.5 million, as part of its probe into China’s rising dominance in global shipbuilding, maritime and logistics sectors.
DBS Group Research reiterated its “buy” call on the counter with a target price of S$3.80. UOB Kay Hian (UOBKH) maintained its “buy” call, but trimmed its target price slightly to S$3.50 from S$3.60 previously. CGS International maintained its “add” rating with its target price unchanged at S$3.62.
Shares of Yangzijiang ended Monday higher by 1.7 per cent or S$0.04 at S$2.42.
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DBS Group Research analyst Ho Pei Hwa on Friday called the sell-off “unwarranted” and said it was a “buying opportunity”.
“(The) recent massive sell-off on Trump’s port fees proposal is uncalled for compared to (the) steady performance of shipping and other shipyard stocks,” she said.
Similarly, UOBKH analyst Adrian Loh was “unconcerned” about the USTR’s proposed fees’ impact on Yangzijiang, calling the counter’s price drops and sell-offs “overdone”.
The proposed port fees, which amount to US$100 per container, can be “easily passed on”, said Loh on Friday. The vesselmaker has not received order cancellations and deferrals as its clients take a “wait-and-see approach” according to management, he added.
The vesselmaker on Wednesday posted a 50.5 per cent year-on-year rise in net profit to 3.6 billion yuan (S$659.3 million) for its second half ended Dec 31, as revenue grew 5.5 per cent to 13.5 billion yuan.
Ho said Yangzijiang’s “record-high FY2024 earnings with above-guidance gross margins” and record-high order backlog signal bright prospects, as Yangzijiang’s yards are full through 2027 with an orderbook of US$24.4 billion.
“This is expected to propel an earnings compound annual growth rate of around 10 per cent in the next two years, driven by both revenue growth and margin expansion, as around 68 per cent of its orderbook is made up of containership orders that command higher value and margins,” said Ho.
ESG efforts
Moreover, she believes the shipbuilder is “poised to ride the clean energy wave” as it aims to ramp up its corporate environmental, social and governance (ESG) efforts.
“Yangzijiang’s improving corporate governance and pivot towards cleaner vessels such as dual-fuel containerships and gas carriers, which now account for around 82 per cent of its orderbook, could draw more interest from ESG funds,” she said.
Loh added that Yangzijiang’s consensus-beating earnings, driven by strong performance of its shipbuilding and shipping segments, underscore its ability to “manage costs effectively while capitalising on favourable market conditions”.
“The highlight of the results was its H2 FY2024 shipbuilding margin, which rose… to 29.7 per cent (from 2024’s) 27.9 per cent… A final dividend of S$0.12 was declared, (an increase of) 85 per cent year on year,” he said.
He forecast a return on equity of “nearly 25 per cent” for the vesselmaker and thinks it could start a share buyback programme “imminently”.
“Oversold”
CGS International analysts Lim Siew Khee and Meghana Kande said on Thursday that Yangzijiang was “oversold”, as the vesselmaker has not received “knee-jerk” reactions such as order cancellations arising from USTR’s proposed fees, according to management.
“Concerns around its order outlook have largely been addressed”, they said. Lim and Kande are confident of Yangzijiang achieving its target order wins worth US$6 billion for FY2025 based on “yard availability and industry demand” despite a slowdown in enquiries.
“Enquiries have slowed as liners are yet to make fleet decisions following large orders made in 2024, (but) we think this is not a concern as existing order wins have filled out its yard capacity till 2027 (as per forecasts), according to management,” they said.
In the near term however, management has cautioned that some potential customers could move to Korean shipyards that offer price cuts and earlier delivery slots six months ahead of Yangzijiang, they added.
