Broker: UOB Kay Hian
Date of Report: Thursday, 07 August 2025

Yangzijiang Shipbuilding: Margin Mastery and Earnings Resilience Propel 31% Upside Potential

Overview: A Profitable Powerhouse Amid Industry Headwinds

Yangzijiang Shipbuilding (Holdings), China’s largest private shipyard, continues to outperform expectations in 1H25, demonstrating record-breaking shipbuilding margins and robust net profit growth. Despite challenges in new order wins and a soft shipping segment, Yangzijiang’s operational excellence, strategic cost control, and focus on high-value deliveries underpin a positive outlook, with a maintained BUY rating and a raised target price of S\$3.45 — signaling a potential upside of 31.1%.

Company Snapshot

• Listed on: Singapore Exchange (Bloomberg: YZJSGD SP)
• Share Price: S\$2.63
• Target Price: S\$3.45 (previously S\$3.29)
• Market Capitalization: S\$10,350.6 million (US\$8,051.8 million)
• Shares Outstanding: 3,935.6 million
• 52-Week High/Low: S\$3.32/S\$1.80
• Major Shareholders: Yangzi International (21.67%), Lido Point (9.85%), Blackrock (7.06%)
• FY25 NAV/Share: RMB 8.54
• FY25 Net Cash/Share: RMB 7.04

Financial Highlights: 1H25 Delivers Record Margins and Net Profit Growth

Yangzijiang’s financial performance in 1H25 stands out for its exceptional profitability, even as headline revenue dipped slightly.

Operational Performance: Margin Machine Defies Revenue Dip

• Stellar Profitability: Despite a 1.3% year-on-year revenue drop, net profit surged by 37% to RMB 4.2 billion. The key drivers were disciplined cost controls, operational excellence, and high-margin vessel deliveries.
• Record Shipbuilding Margins: Shipbuilding gross profit margin hit a record 35.2% in 1H25, up 9.3ppt year-on-year, attributed to lower steel costs, effective contract execution, and favorable pricing. Management expects these margin levels to be sustainable in the near- to medium-term.
• Strong Associates Contribution: Significant profit boost from Tsuneishi Zhoushan investment completed in 1Q25, alongside gains from cashflow hedges and currency translation.
• Order Delivery: 23 vessels were delivered in 1H25, representing 41% of planned 2025 deliveries (total: 56).

Orderbook and New Business: Short-Term Weakness, Long-Term Promise

• New Order Wins Lag: Only US\$537.2 million in new orders (14 vessels, 85% containerships) were secured in 1H25 — in line with expectations due to US anti-China port fees and global tariff uncertainties.
• Orderbook Strength: As of June 30, 2025, the orderbook stood at 236 vessels worth US\$23.2 billion, with clean energy vessels making up approximately 74% of the value.
• Pipeline Prospects: The company remains optimistic about converting US\$2 billion in LOIs for 2028-2029 delivery slots, noting limited alternatives outside Chinese shipyards.

Segment Analysis: Shipping Faces Headwinds, Balance Sheet Remains Fortress-Like

• Shipping Segment Drag: Revenue fell 15% year-on-year to RMB 511 million as charter rates softened. Gross profit margin for the shipping segment declined to 26% from 41% in 1H24, highlighting the segment’s exposure to volatile freight markets and increased repair/maintenance costs.
• Strategic Response: Management aims to lock in longer-term attractive time charters while maintaining some spot exposure to capitalize on potential rate spikes.
• Financial Strength: Net cash position reached RMB 18.3 billion (S\$3.28 billion), about one-third of market cap. Gross gearing improved to 21.7% (from 25.8% at end-2024), providing flexibility for strategic investments, capacity expansion, and shareholder returns.

Financial Forecasts: Upgrades and Key Metrics

Yangzijiang’s earnings outlook has been upgraded for 2024-2026, driven by higher shipbuilding margin assumptions (33% for 2025, 29% for 2026-27). Each 1% margin change impacts 2025 net profit by 2.7%.

Valuation and Recommendation: Compelling Upside, Conservative Multiples

• Target Price: S\$3.45, based on a PE multiple of 8.6x (1 standard deviation above the 10-year average of 6.4x), justified by earnings visibility through 2028 and a stellar operational record.
• Attractive Valuation: Yangzijiang trades at a 2025F PE of just 7.0x and EV/EBITDA of 3.3x, with a forecast ROE above 27% and an appealing 4.2% dividend yield.
• Share Price Momentum: The stock has rallied 41% since its April low, showing resilience despite tariff uncertainties and macroeconomic headwinds, as investors focus on near-term earnings strength.
• Orderbook Details: 236 vessels worth US\$23.2 billion, with clean energy vessels making up 74% of value, providing robust forward visibility.

Key Catalysts and Risks

• Execution of Orderbook: Continued safe, efficient execution and maintenance of >30% shipbuilding margins would reinforce confidence.
• New High-Margin Orders: Securing orders for dual-fuel containerships, oil, or LPG tankers would demonstrate industry trust in Chinese yards.
• Share Buyback: A more active buyback program (dormant since April 17, 2025) could further support share price.
• Risks: Prolonged weakness in global trade, further escalation of tariffs, or a sharp rise in input costs could pressure future earnings and margins.

Cash Flow, Balance Sheet, and Key Metrics

• Net Cash Inflow: Projected to remain strong, supporting increased dividends, strategic investments, and operational flexibility.
• Dividend Policy: Dividend yield forecast to rise from 3.0% in 2024 to 4.7% in 2027, though management is encouraged to be even more generous given robust cash position.
• Leverage Metrics: Net debt-to-equity ratio is expected to stay deeply negative (indicating net cash), improving the company’s ability to weather shocks and pursue growth.

Conclusion: Margin Leadership and Resilient Earnings Make Yangzijiang a Top Pick

Yangzijiang Shipbuilding’s 1H25 results solidify its reputation as a margin-focused, operationally excellent shipbuilder with a fortress balance sheet and strong earnings visibility. Despite short-term orderbook concerns and shipping market volatility, the company remains well-positioned for continued outperformance, offering investors compelling value, robust ROE, and a clear path to further upside. Investors seeking exposure to the global shipbuilding supercycle and China’s industrial resilience should keep Yangzijiang high on the watchlist.

Important Disclosures and Analyst Certification

This report is prepared by UOB Kay Hian, which holds all relevant regulatory licenses in Singapore and other jurisdictions. The analyst certifies that the views expressed are personal, independent, and not influenced by compensation related to the views or subject companies. For further country-specific disclosures and distribution restrictions, please refer to UOB Kay Hian’s official channels.