Comprehensive Analysis of Yangzijiang Shipbuilding and Its Industry Peers

Broker Name: CGS International

Date of Report: December 2, 2024

Yangzijiang Shipbuilding: Navigating a Record-Breaking Year

Yangzijiang Shipbuilding (YZJ) has made a significant impact in the shipbuilding industry with its recent announcement of new orders valued at US\$2.63 billion for 21 vessels, including 12 dual-fuel containerships, slated for delivery between 2027 and 2029. This achievement has propelled the company’s year-to-date (YTD) order wins to an unprecedented US\$14.3 billion, far exceeding the forecasted US\$11.3 billion to US\$11.6 billion for 2024.

The company’s strategic partnerships have been instrumental in securing these orders. For instance, Maersk has ordered six LNG dual-fuel 17K TEU containerships, while Euroseas contracted YZJ for two 4.3K TEU containerships. Additionally, Ocean Network Express (ONE) has ordered six methanol dual-fuel 13K TEU containerships. This reflects a robust demand driven by firm freight rates and a global push towards fleet renewal and decarbonization.

YZJ’s stock is currently trading at a 30% discount compared to its peers, presenting a buying opportunity. The company boasts a strong order book with deliveries lined up until 2029 and a superior return on equity (ROE) of 27%. The recommendation is to “Add” with a target price of S\$3.20. Key catalysts for a re-rating include capacity expansion and stronger-than-expected order wins. However, potential risks include rising steel costs, order cancellations, and adverse policy actions from the newly elected US government.

Keppel Ltd: A Steady Performer

Keppel Ltd, with a price target of S\$8.78, is maintaining its momentum with a current market capitalization of US\$9,080 million. The company is projected to experience modest growth with a two-year earnings per share (EPS) compound annual growth rate (CAGR) of 0.9%. The recurring return on equity (ROE) stands at 1.10 for 2024F, indicating a stable performance. The dividend yield is projected at 5.0%, providing a steady income stream for investors. Keppel Ltd is recommended as an “Add” for its consistent performance and growth potential.

Capitaland Investment: Poised for Growth

Capitaland Investment shows a promising outlook with a target price of S\$4.30 and a market cap of US\$10,222 million. The company is set to experience a significant EPS growth of 77.9% over the next two years. With a recurring ROE of 0.98 and a dividend yield of 4.4% for 2024F, Capitaland Investment is positioned as a growth stock within its sector. It is recommended as an “Add,” reflecting its potential for substantial returns.

Seatrium Ltd: Navigating Market Volatility

Seatrium Ltd, with a target price of S\$2.69, faces a challenging market with a high P/E ratio of 29.3 for 2024F, indicating market volatility. Despite this, its market cap of US\$4,932 million and a dividend yield of 3.5% offer some stability. The recommendation remains “Add,” suggesting optimism for future growth as market conditions stabilize.

Yangzijiang Shipbuilding: A Strong Contender in China

With a target price of S\$3.20 and a market cap of US\$7,161 million, Yangzijiang Shipbuilding is a formidable player in the Chinese shipbuilding sector. The company boasts a robust recurring ROE of 26.8% and a competitive dividend yield of 3.8% for 2024F. The stock is recommended as an “Add,” underscoring its strength and potential for future growth in a competitive market.

Korea Shipbuilding & Offshore: A Leader Among Korean Peers

Korea Shipbuilding & Offshore, with a target price of KRW 232,000, is a leader in the Korean market with a market cap of US\$9,905 million. The company is projected to achieve a remarkable two-year EPS CAGR of 166.4%, reflecting its strong growth trajectory. With a recurring ROE of 1.29 for 2024F and a dividend yield of 6.9%, it remains a top choice for investors seeking exposure to the Korean shipbuilding industry. The recommendation is to “Add” due to its strong growth prospects.

HD Hyundai Mipo and Samsung Heavy Industries: Navigating Challenges

HD Hyundai Mipo and Samsung Heavy Industries continue to face challenges with high P/E ratios of 139.1 and 42.8 respectively for 2024F, reflecting market volatility. Despite this, their market caps of US\$3,423 million and US\$6,879 million respectively, alongside dividend yields of 1.7% and 6.3%, present opportunities for strategic long-term investments. Both companies are recommended as “Add,” suggesting potential for recovery and growth.

Conclusion

The shipbuilding and marine sectors are poised for growth as companies like Yangzijiang Shipbuilding, Keppel Ltd, and Korea Shipbuilding & Offshore capitalize on strategic partnerships and market opportunities. Despite facing challenges such as market volatility and rising costs, these companies maintain strong positions with promising growth prospects, making them attractive options for investors.