Yangzijiang Shipbuilding (YZJ) has recently secured 17 contracts worth about US$871m, bringing total orders won YTD to US$2.096b. These new contracts are scheduled for deliveries in 2015-2016, and provide much-anticipated replenishment of the order book for execution of orders further down the road. Newbuild prices for bulk carriers in Chinese yards have been on a slow but steady uptrend since early this year, but additional monitoring is needed to determine its sustainability, which is dependent on the global economic recovery, the rate of China’s yard consolidation process as well as any further tightening in China’s money supply. With a gradually recovering newbuild market, we raise our peg from 8x to 9x P/E, while rolling forward our valuations from blended FY13/14F earnings to FY14F earnings, resulting in a slight rise in YZJ’s fair value estimate to S$1.04 (prev. S$0.99). Maintain HOLD.
Secures more contracts to provide work down the road
Following the announcement of eight shipbuilding contracts in early Sep totaling US$214m, Yangzijiang Shipbuilding (YZJ) has secured 17 more contracts worth about US$871m, bringing total orders won YTD to US$2.096b. The 17 new contracts are scheduled for deliveries in 2015-2016, and provide much-anticipated replenishment of the order book for execution of orders further down the road – indeed the company may have to rely on a higher volume turnover as it starts executing more of its newer orders (also lower-margin) to maintain the yard’s profit level. Meanwhile, the group still has a total of 28 options outstanding worth about US$1.36b.
Newbuild prices see slow but steady uptrend
As Exhibits 2 and 3 illustrate, newbuild prices for bulk carriers in Chinese yards have been on a slow but steady uptrend since early this year. This has been more apparent in the larger ships, such as the Capesize carriers (e.g. US$50m in Sep 2013 vs US$45m in Dec 2012). Indeed, according to RS Platou , spot earnings for Capesize tonnage rose substantially over the last month due to higher Chinese iron ore imports. The strength in Capesize has also influenced the Panamax sector positively as charterers started to take two Panamaxes instead of one Capesize when the spread in freight rates became greater than normal. In the longer term, a gradual recovery in the world economy should drive the demand for tonnage.
Slight increase in FV to S$1.04; still a HOLD
With a gradually recovering newbuild market, we raise our peg from 8x to 9x P/E, while rolling forward our valuations from blended FY13/14F earnings to FY14F earnings, resulting in a slight rise in YZJ’s fair value estimate to S$1.04 (prev. S$0.99). While the newbuild price trend of ships by Chinese yards looks positive, additional monitoring is needed to determine its sustainability, which is dependent on the global economic recovery, the rate of China’s yard consolidation process as well as any further tightening in China’s money supply that would affect financing terms offered by yards. Maintain HOLD
Following the announcement of eight shipbuilding contracts in early Sep totaling US$214m, Yangzijiang Shipbuilding (YZJ) has secured 17 more contracts worth about US$871m, bringing total orders won YTD to US$2.096b. The 17 new contracts are scheduled for deliveries in 2015-2016, and provide much-anticipated replenishment of the order book for execution of orders further down the road – indeed the company may have to rely on a higher volume turnover as it starts executing more of its newer orders (also lower-margin) to maintain the yard’s profit level. Meanwhile, the group still has a total of 28 options outstanding worth about US$1.36b.
Newbuild prices see slow but steady uptrend
As Exhibits 2 and 3 illustrate, newbuild prices for bulk carriers in Chinese yards have been on a slow but steady uptrend since early this year. This has been more apparent in the larger ships, such as the Capesize carriers (e.g. US$50m in Sep 2013 vs US$45m in Dec 2012). Indeed, according to RS Platou , spot earnings for Capesize tonnage rose substantially over the last month due to higher Chinese iron ore imports. The strength in Capesize has also influenced the Panamax sector positively as charterers started to take two Panamaxes instead of one Capesize when the spread in freight rates became greater than normal. In the longer term, a gradual recovery in the world economy should drive the demand for tonnage.
Slight increase in FV to S$1.04; still a HOLD
With a gradually recovering newbuild market, we raise our peg from 8x to 9x P/E, while rolling forward our valuations from blended FY13/14F earnings to FY14F earnings, resulting in a slight rise in YZJ’s fair value estimate to S$1.04 (prev. S$0.99). While the newbuild price trend of ships by Chinese yards looks positive, additional monitoring is needed to determine its sustainability, which is dependent on the global economic recovery, the rate of China’s yard consolidation process as well as any further tightening in China’s money supply that would affect financing terms offered by yards. Maintain HOLD
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