DBS Group Research&rsquo s Ho Pei Hwa has upped the group&rsquo s TP to $1.70 as it steps up its ESG initiatives.

 

DBS Group Research analyst Ho Pei Hwa has kept her &ldquo buy&rdquo recommendation on Yangzijiang Shipbuilding with a higher target price of $1.70 from $1.40 previously.

 

The new target price of $1.70 is based on an FY2023 P/B of 1.7x, which implies an FY2023 P/E of 11x, says Ho.

 

While the group&rsquo s share price has nearly doubled in a year, Ho notes the group&rsquo s shares could &ldquo re-rate further&rdquo towards her target multiples. This is as the group delivers strong earnings growth, makes headway into the liquefied natural gas (LNG) carrier market and makes advances in environmental, social and governance (ESG) improvement, she writes.

 

Yangzijiang is stepping up its ESG initiatives, with the introduction of its two carbon strategy. The first, Green Factory, aims to reduce carbon footprint in its shipyards, while the second strategy, Green Vessels, targets to build more clean energy vessels.

 

&ldquo In fact, Yangzijiang has seen notable progress with [an estimated] 40% of orderbook coming from clean energy vessels. An ESG committee, comprising senior management and external advisors, has been set up to build a more structured ESG management system,&rdquo Ho writes.

 

The group' s record high order backlog will also help to boost the group&rsquo s earnings visibility through 2025, she adds.

 

&ldquo Yangzijiang&rsquo s yards are full through 2025 with an orderbook of [over] US$10 billion ($13.70 billion). This is expected to propel an earnings compound annual growth rate (CAGR) of 19% in the next three years, driven by both revenue growth and margin expansion, as 80% of its orderbook is made up of containership orders that command higher value and margins,&rdquo she writes. &ldquo We expect further uplift in its orderbook, boosted by potential orders for large LNG carriers.&rdquo

 

At present, Ho deems Yangzijiang&rsquo s share price as &ldquo undemanding&rdquo .

 

&ldquo The stock remains undemanding, trading at 1.4x FY2023 P/BV and 9x FY2023 PE against a project 16.6% return on equity (ROE) in FY2023, and three-year core earnings per share (EPS) CAGR of 19%,&rdquo she says.

 

In her view, the market has overlooked the group&rsquo s earnings growth potential, as well as the structural uptrend of shipbuilding demand, and its ESG transformation into clean vessel space.

 

That said, key risks include the group&rsquo s revenue being denominated mainly in US dollars (USD).

 

&ldquo Assuming the net exposure of [around] 50% is unhedged, every 1% depreciation in the USD (against the RMB) could lead to a 1.5% decline in earnings. Every 1% rise in steel cost, which accounts for [around] 20% of cost of goods sold (COGS), could result in a 0.8% drop in earnings,&rdquo says Ho.

NOV 16, 2022 12:37 PM

DBS Group Research has raised its target price for to S$1.70 from S$1.40, after the company shared a new environmental, social and corporate governance (ESG) strategy as well as a record order book value in a Q3 business update. 

The new target price is based on revised profit forecasts for FY2022 to FY2024, which were lifted by 4 per cent to 6 per cent in recognition of the higher expected revenue from Yangzijiang&rsquo s new order wins. DBS analyst Ho Pei Hwa said on Tuesday (Nov 15) that she expects the company&rsquo s net profit to grow at a compound annual growth rate of 19 per cent between FY2022 and FY2024. 

The shipbuilder&rsquo s order book stood at a new high of US$10.3 billion as at Nov 13 &ndash the date of its Q3 update &ndash with US$4.2 billion attributable to contracts acquired year to date. The wins mark &ldquo another fabulous year&rdquo for Yangzijiang as they more than doubled its annual order win target of US$2 billion, said Ho.

She predicts that Yangzijiang will deliver returns on equity of about 17 per cent to 18 per cent for FY2023 and FY2024, and therefore raised her valuation peg to 1.7 times the price-to-book ratio of FY2023 estimates. 

Yangzijiang Shipbuilding new order wins more than doubled 2022 target