Yangzijiang share price soars after 1H24 earnings
Yangzijiang’s share price rose 12.6% to reach S$2.68 as of mid-day on 13 August 2024.
This would bring Yangzijiang’s shares close to its 52-week high of S$2.75.
Earlier, we shared that Yangzijiang was one of the best-performing blue-chip stocks in Singapore in the first half of 2024.
The company’s latest earnings seem to have led to more investors being positive on the stock.
Let us find out what is driving the improved sentiment towards Yangzijiang’s shares.
Summary of Yangzijiang Shipbuilding 1H24 earnings
Yangzijiang reported its earnings for the first half of 2024 (1H24).
- Net profit grew 77.2% year on year to RMB3.06bn (S$563m) in 1H24
- Revenue grew 15.3% year on year to RMB13.05bn (S$2.4bn) in 1H24
- Compared to 2H23, revenue and net profit grew 2% and 28.7% respectively.
Yangzijiang Shipbuilding delivered 37 vessels (FY23: 57 vessels) and is ahead of its target of 63 vessels for FY24.
Gross margin expanded to 26.7% (FY23: 22.4%) on higher-valued contracts, lower labour and steel costs, weak RMB vs US$, and strong freight rates from its shipping fleet.
Shipping gross margin, in particular, rose to 40.5% (FY23: 34.4%), as conflict at the Red Sea increase the sailing time via alternative routes and raise demand for shipping slots. Management made the decision to reflag its vessels to Singapore flags.
Yangzijiang Shipbuilding secured a record US$8.48bn orders in 1H24, of which about 79% are clean energy vessels, where demand has grown due to geopolitical tensions and transition to cleaner energy.
Management, however, is keeping to its order win target of about US$4.5bn a year, taking into account a one-year revenue run-rate for its existing yard.
Orderbook hit a new high of US$20.2bn (Dec 23: US$14.5bn) with 224 vessels on hand for completion till mid-2028.
Contributions from joint venture Jiangsu Yangzi-Mitsui Shipbuilding Co., Ltd (YAMIC) rose 5-folds to RMB269m year-on-year as it garnered more orders for gas carriers.
On a negative note, Yangzijiang Shipbuilding has cancelled the order for 2 LNG carriers that was secured in Oct 2022 from a European customer due to customer’s payment default. We estimate the contract value of each vessel is about US$220m. These are scheduled to be delivered between 2025 and 2026. Yangzijiang Shipbuilding will construct these vessels for on-sale to other customers. These are the only contracts where Yangzijiang Shipbuilding did not receive a down-payment before commencing work.
Yangzijiang Shipbuilding has recently secured a site next to its existing yard which will add 70% capacity when it becomes operational from 2026. Total capex is about RMB3bn.
It is also converting its existing chemical terminal into an LNG terminal with storage tank facilities, which will be ready by 2026. Total capex is RMB2bn.
The balance sheet has net cash of RMB16.2bn, or S$0.76 per share. It has a policy to distribute 30-40% of profits as dividend at end of FY. No interim dividend will be paid in 1H24.
Beansprout’s take on Yangzijiang Shipbuilding 1H24 results
Yangzijiang’s earnings in 1H24 are stellar and better than market expectations.
This would reflect the upcycle in the shipbuilding/shipping sector currently, which has been extended due to the Red Sea conflict and geopolitical risks.
At the same time, Yangzijiang Shipbuilding’ orders on hand would help to support its earnings in the next two years.
However, Chinese and Korean yards are operating at full capacity and rolling out expansion plans, which may lead to risks of an industry overcapacity in the medium term.
Yangzijiang is also operating at full capacity and may have limited room to take on significantly more work until the new yard comes on stream in 2026.
Management plans to utilise its cash on hand to offer financing to customers through long-term bare-boat hire-purchase agreements.
Following its 74% share price rally year-to-date, Yangzijiang is trading at a price-to-book valuation of 2.4x, above its historical average of 0.7x. The stock is expected to offer a dividend yield of 2.7%.
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