She expects the company to secure more orders for LNG carriers, which has high technical barriers to entry and could be a significant growth opportunity.
"The market has yet to fully appreciate the potential for earnings growth from its record-high order backlog as well as potential yard expansion of around 20%-30%," says Ho.
The company has built up an orderbook around US$24 billion that is at a record high, boosting earnings visibility through 2027.
Ho estimates Yangzijiang Shipbuilding to generate a 14% CAGR in earnings growth over the next two years.
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Besides revenue growth, the company is seen to enjoy improving margins, as two-thirds of its orders are made up of higher-margin contracts to build containerships. It is enjoying lower costs of steel and favourable forex as well.
With improving earnings, Ho believes Yangzijiang Shipbuilding, holding its payout ratio at around 30%, can pay a dividend of 9.5 cents for FY2024, up from 6.5 cents paid for FY2023.
Ho observes that the company's payout ratio has ranged between 30% and 40%.
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For the current FY2025, the company might pay between 11.5 and 13.5 cents, assuming a payout ratio of 34%, translating into a yield of 4%.
"Given its strong cash flow generation, there is potential for further upside in the payout ratio to as high as 40%," says Ho.
Her new target price of $3.80 is based on 2.5x FY2025 P/BV (11x implied PE), justified by its consistently high ROE of more than 20% ROE and 3%-4% dividend yield.
Yangzijiang Shipbuilding closed at $3.05 on Jan 31, up 2.69% for the day and up 84.85% in the past 12 months.
