Founded in 1956 and headquartered in Jingjiang, China, Yangzijiang majorly operates in two business segments: Shipbuilding, which contributes 94.5% of total sales, and Shipping, which accounts for 4.2%. The remaining 1.3% comes from other activities. On a geographic basis, a significant portion of the revenue is derived from Italy (34%), followed by Canada (31.1%), Greater China (13.3%), Japan (8.5%) and other regions 13.1%.

Strong order win supported by industry growth

Shipbuilders had a favourable year in 2023, with global shipyard output rising by 10% year-over-year (YoY) to reach 35m compensated gross tonnage. On a market share basis, 50% of this output was built by Chinese shipyards, while South Korea and Japan contributed 26% and 14%, respectively. The demand for new builds gained similar momentum in 2024, fuelled by orders for alternative-fuel investments and tankers. Supported by the robust growth in the shipbuilding sector in 1H24, the company saw a significant improvement in its overall operational performance. The company reported a robust order win of 79 vessels in 1H24, as compared to the 97 for the full-year 2023, driven by containerships, oil tankers, and gas carriers. The company booked USD8.48bn worth of new orders in 1H24, surpassing its full-year 2024 target of USD4.50bn.

Moreover, the strong outstanding order book of 224 vessels as of 1H24 brings in revenue visibility until mid-2028. The company expects containers, oil tankers and gas carriers to continue to fuel new order builds in the coming years. The company projects containership demand to grow at a 3.1% CAGR by 2029, driven by environmental regulatory shifts and fleet renewal. Additionally, it expects demand for crude oil tankers to register a CAGR of 2.5% by 2029, due to fleet renewal and increasing sailing distance. Furthermore, the company anticipates LNG and LPG carrier demand to clock a CAGR of 3.6% and 5.5% by 2029, respectively, owing to global energy transition and strong growth in shale gas production.

Fleet decarbonization to drive commercial demand

Commercial shipbuilding is a vital factor in the global maritime industry, especially in aspects of international trade and economic development. These ships including containerships, bulk carriers, and tankers, handle over 90% of the global trade. Given this significance and importance, along with environmental concerns, there is growing need to decarbonize the shipping industry. This need for decarbonization, coupled with the company’s commitment towards achieving it, has helped increase in new orders.

In July 2023, the International Maritime Organisation introduced stringent requirements for the Green House Gas (GHG) reduction plan for the shipping industry. The industry aims to reach net-zero emissions by 2050. In addition, China, with its significant market share in shipbuilding, aims to advance green shipbuilding technology and reach net-zero emissions by 2060. Driven by these commitments, the company introduced a ‘sustainability checkpoint’ in 2023, targeting to achieve a 25% reduction in carbon intensity by 2030 vs. 2023. As of 1H24, green vessels accounted for around 70% of the total orderbook value and around 79% of new order, with containership remaining the prominent vessel type. Furthermore, the company plans to start a new manufacturing base for green vessels, in line with their energy transition plans and overall growth strategy.

Robust financial performance propels stock prices upward

Over the past three years, the company registering a consolidated revenue CAGR of 18%, reaching CNY24.1bn. During the same period, EBITD grew at a CAGR of 22%, with the margin expanding by over 90 basis points (bps) to 22% in 2023. Recently in 1H24, the company reported record sales of CNY13bn, up 15.0% YoY, driven by improved shipbuilding activities. Additionally, the company reported a gross margin of 26.7% an expansion of 810 basis points YoY, due to improved charter rates, which drove overall profits to CNY3.1bn, a robust increase of 77% YoY.

Strong financial performance has pushed stock prices higher, with a YTD gains of over 70%. Despite these gains, the valuation remains in line with its historical averages. Yangzijiang is currently trading at a P/E ratio of 8.5x, based on 2024 consensus EPS of CNY1.59, compared to its 10-year historical average of 7.8x. However, it is trading significantly below the global peer average of 37.6x. Over the last few quarters, FY25 and FY26 revenues and EPS has been significantly revised upward by the consensus. All the seven analysts covering the stock has given a “Buy” rating, with an average target price of CNY17.6, indicate a upside potential of around 29% from the current market price.

Overall, Yangzijiang has demonstrated strong performance over the last few years and placed well in the industry to take advantage of robust sector outlook. Its strong order book and recent new order wins provides long-term revenue visibility. However, there are certain risks associated with its operations, including challenging market conditions, which may necessitate renegotiations and rising commodity prices may put pressure the operating margins.