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CGS-CIMB maintains ‘buy’ on Yangzijiang Shipbuilding as it looks to build larger LNG carriers

CGS-CIMB Research analysts Lim Siew Khee and Izabella Tan have maintained their “buy” rating on Yangzijiang Shipbuilding (YZJ) and an unchanged target price of $1.63.

The analysts highlight that YZJ obtained a licence from France-based Gaztransport & Technigaz (GTT) on Sept 8, which enables it to construct LNG vessels using GTT Mark III membrane technologies.

Lim and Tan say that the license allows YZJ to build large LNG carriers above 100,000 cubic meters (CBM). CBM refers to the freight volume of the shipment for domestic and international freight.

Smaller LNG carriers of smaller than 100,000 CBM do not have this GTT requirement and are typically built with independent tanks that are either semi-refrigerated or insulated.

In 2017, YZJ delivered two 27,000 CBM carriers for Evergas with a total newbuild contract value of US$135 million ($190.11 million). These vessels were built on cylindrical horizontal semi-refrigerated tanks.

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For YZJ itself, shipping news service Tradewinds reported that Celsius Tankers is negotiating with the company and China Merchants Industry for 10-12 large LNG carriers worth about US$2.8 billion (or about US$230 million – US$280 million per vessel).

Prices for 174,000 CBM LNG carriers have also inched up by about 6% y-o-y to about US$214 million per vessel.

Assuming the orders are equally split between China Merchant and YZJ, this could add up to US$1 billion to US$1.4 billion of orders for YZJ.

In their previous report on Sept 8, the analysts noted that YZJ could potentially secure 16 new bulk carrier or containership orders worth US$2.29 billion, though the timeline and contracts have yet to be announced by YZJ.

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Overall, YZJ could be actively bidding for up to US$3.7 billion of new orders in the pipeline. Its order book stood at US$8.13 billion as of 1HFY2022 ended June.

On a broader view, according to shipping services firm Clarksons, 120 newbuild contracts for LNG carriers have been awarded in 2022 ytd, as compared to a total of 78 vessels in 2021.

Korean shipbuilders command the largest market share of LNG and LPG carriers (67%), followed by Chinese shipbuilders.

The delivery slots for the latest orders in September by Daewoo DSME and Samsung Heavy Industries are scheduled for 2025 or 2026, as such, the analysts believe YZJ’s availability in 2025 could be a plus.

Lim and Tan note that YZJ’s yards are full till 2024, with about 15 containership slots left for deliveries in 2025.

The analysts also note YZJ is trading at 0.99x P/B ratio for FY2023, compared to the Korean shipbuilders at 1.39x, and they think that securing LNG orders could narrow YZJ’s discount to its Korean peers.

As of 3.54pm, shares of YZJ were trading at $1.02, with a FY2022 P/B ratio of 1.1 and dividend yield of 5.02%.
Source: The Edge Singapore

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