Shareholders in Yangzijiang Shipbuilding could be set for a major payout with the Chinese company sitting on a huge cash pile, according to analysts.
At the end of 2023, the Singapore-listed company had CNY 16.6bn ($2.3bn) in cash, which was up 54% year on year and total borrowings of CNY 5.6bn resulting in a net cash position of nearly CNY 11bn.
“After paying out its 2023 dividends amounting to around SGD 257m, this still leaves the company with over SGD 1.74bn in cash, or SGD 0.44 per share in cash or 25% of its current share price,” UOB Kay Hian analyst Adrian Loh said.
“Without any onerous spending on the horizon, we believe that the company could pay out more dividends,” he added.
Yangzijiang’s management recently told analysts it is not considering capacity expansion at the moment despite the healthy demand for newbuildings.
“With the company’s shipyards full until at least 2027, and a handful of slots left for delivery in the second half of 2027, it is not considering capacity expansion at the moment unless there is land adjacent to its yards in Jiangsu province,” Loh said.
“With the shipbuilding industry doing well in China, prices for such assets would not be cheap. In addition, Yangzijiang stated that shipbuilding margins would need to be consistently above 35% to 40% for it to acquire a new yard,” Loh said.
There could be more rewards to come for shareholders with Loh raising his earnings estimates for Yangzijiang Shipbuilding for 2024 and 2025 by 16% and 13%, respectively.
“Our new shipbuilding gross margins have been upgraded to 18% for both years vs 16% and 15% previously,” he said.
“In addition, given management’s bullishness on the shipping segment, we have upgraded the segment’s gross margins for 2024 to 42% from 38% previously.
“We acknowledge that the gross margins for the shipbuilding business are at least 2-4ppt below the company’s guidance. However, we prefer to err on the side of caution for now and upgrade earnings at a later stage,” Loh added.
As a result, the Singapore brokerage has raised its target price to SGD 2.19 per share from its previous target of SGD 1.92 due to the earnings upgrades.
Loh said the target price is pegged to a target price-to-earnings (PE) ratio multiple of 9.4x which is above the company’s five-year average of 6.3x.
“We believe the premium to its average PE multiple is justified given the company’s earnings visibility into 2027 as well as its strong track record of safe and efficient shipbuilding for its international customer base,” he added.
Yangzijiang Shipbuilding’s orderbook comprised of 182 vessels worth $14.5bn at the end of 2023 of which 58% are described as “clean energy vessels”.
Loh said the shipbuilder will be targeting $4.5bn of new orders in 2024 compared with its historical guidance of $2bn to $3bn and believes that this level of order wins could persist into 2025.
In the first two months of this year, Yangzijiang Shipbuilding has won newbuilding orders worth $1.35bn, or about 30% of its 2024 target.
