Yangzijiang

DMG & Partners, Oct 2

YANGZIJIANG Shipbuilding (YZJ) announced yesterday that it had secured US$871 million in new orders for 17 ships last month, lifting Q3-13 new orders to US$1.09 billion (25 ships) and YTD new orders to US$2.1 billion, ahead of our and the street's estimate of US$2 billion. We now raise our FY13 order win estimate to US$2.6 billion.

The Baltic Dry Index (BDI) has doubled over the past three months to 2,000 pts, leading to a resurgence in commercial ship orders. YZJ has options for 28 ships with a total value of US$1.36 billion. We expect most of these options to be taken up, since ship prices have started increasing by 5 to 8 per cent from the bottom.

During our yard visit, we learnt that YZJ is eyeing orders for 14,000-TEU vessels. We think this is likely to come after the first few 10,000-TEU vessels have been delivered and their operational characteristics tested by customers.

We reiterate our "buy" rating on the stock with a higher TP of S$1.45, as we upgrade our FY14-15F EPS by 10 per cent. With new orders coming in stronger than expected, we see potential room for EPS upgrades and the expansion of its P/E.

BUY