Despite reporting FY2024 earnings that surged by two-thirds and proposing a final dividend that is nearly from last year's, shipbuilder Yangzijiang Shipping (Holdings) suffered a sell-down from jittery investors over worries that US proposals to charge up to US$1.5 million for Chinese-built vessels entering US ports.
While most analysts remain upbeat on the company's prospects, some of them have slightly trimmed their target prices.
From a recent peak of $3.30 on Feb 20, Yangzijiang shares plunged by nearly a third to close at $2.38 on Feb 28.
Ho Pei Hwa of DBS Group Research describes the sell-off as "overdone" and she has kept her "buy" call and $3.80 target price for several reasons.
Relative to other shipping companies and major Chinese shipyards, Yangzijiang suffered a larger drop in its share price, she observes.
Ho also points out that shipping companies are likely to pass on the additional port fees to consumers via higher surcharges.
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Also, Chinese shipyards account for nearly half of global shipbuilding capacity. Thus it is "not plausible" for shipping lines to avoid placing orders with Chinese shipyards entirely, especially as the Korean yards are also very full. Domestic US yards, meanwhile, are not competitive as they cost 2 -3 times that of Asian yards.
Ho acknowledges that this news "inevitably" caused uncertainties and "may impact" new ordering sentiment.
Nonetheless, "based on the current hefty global ship order backlog, any new order placed now will be delivered from 2028 onwards which is nearing the end of Trump’s presidency term," she notes.
Luis Hilado of Citi Research points out that the US proposal, in its current form, is "not debilitating" and not the "doom and gloom" that the drop in Yangzijiang's share price movement has suggested.
Citing the company management, Hilado says the potential increase in costs to shippers would just be around US$100 per container.
Nonetheless, Hilado, while keeping his "buy" call, has tempered his revenue outlook as lower value contracts will be "significantly" worked through the current FY2025, thereby diluting the price uplift from the higher value order book.
The company's management has guided for no revenue growth this year but Hilado believes this is a "conservative" stance. From an earlier projection of RMB34.2 billion in FY2025 revenue, Hilado has lowered his estimate to RM27.7 billion, which is still a 4% gain over FY2024.
All in, he has lowered his FY2025 and FY2026 earnings forecast by 4% and 15% respectively. By applying the same 10x earnings multiple, Hilado's new target price is thus trimmed to $3.24 from $3.40.
In FY2024, Yangzijiang won record new orders of US$14.6 billion. This brings its total order book as at the end of last year to US$24.36 billion, providing revenue visibility up to 2030 and thereby ensuring sustained growth in the coming years.
For the current FY2025, the company expects to win another US$6 billion worth of new orders - versus an earlier projection of US$4.5 billion.
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Even so, Adrian Loh of UOB Kay Hian observes that the company is not standing still. It has put in place multiple growth plans for the coming two years including RMB3 billion to be invested for bigger yard space and RMB2 billion to be spent on an LNG terminal to help diversify its revenue streams.
However, Loh, while maintaining his "buy" call, has trimmed his FY2025 earnings estimate by 1% to account for slightly higher tax rates. For the coming FY2026, he has raised his earnings projection by 7% to factor in contributions from new projects.
Loh's new target price of $3.50, from $3.60, is pegged to 9.5x earnings, which is 1 s.d. above the ten-year average of 6.8x. "We believe the premium to its average PE multiple is justified given the company’s earnings visibility into 2028," says Loh.
Besides the higher dividends, the company may try to improve shareholders' value via another way. "We believe the company could start a share buy-back programme imminently," he adds.
Lim Siew Khee and Meghana Kande of CGS International, similarly, believe that Yangzijiang's shares have been "oversold" following news of the US port fees.
They are satisfied that concerns over the order outlook have "largely been addressed by the management. "While enquiries have slowed as liners are yet to make fleet decisions following large orders made in 2024, we think this is not a concern as existing order wins have filled out its yard capacity till 2027," state Lim and Kande.
The company has not seen any knee-jerk reactions such as order cancellations or delays due to the US proposals, they add.
They've kept their "add" call and $3.62 target price, which is based on 12x FY2026 earnings, a valuation multiple in line with the Korean and Japanese yards.
For the CGS International analysts, key catalysts for this counter include stronger-than-expected margins amid low steel costs and favourable forex.
On the other hand, downside risks will be from higher steel costs, order cancellations, and the finalisation of punitive measures by the US government against the Chinese shipbuilding industry.
