Yangzijiang secures 18 new contracts worth $815m

See why it keeps winning contracts.

Yangzijiang continues to beat expectations when it comes to contract wins, with its latest feat of securing 18 new contracts worth $815m, due to its "strong execution, industry foresight and ability to move up the value chain more quickly than peers," said DBS.

In fact because of these core advantages, Yangzijian can be considered one of the best Chinese shipyards around, with rosy prospects to score higher value-add projects like mega containerships, mid-water semi-submersibles and LPG & LNG carriers.

Here's more from DBS:

Yangzijiang announced that it has secured 18 new contracts worth US$815m comprising: i) thirteen 82k DWT bulk carriers, ii) one 208k DWT bulk carrier, iii) four 10k TEU containerships.

YTD wins lifted to US$1.07bn; orderbook rises to US$4.9bn. Including the above contracts, YZJ has secured a total of 26 shipbuilding contracts with an aggregate value of US$1.07 bn. We estimate that this would lift its orderbook from US$4.6bn to US$4.9bn. Order wins have been stronger than expected, forming 54% of management's guidance of not more than US$2bn shipbuilding contracts this year given that the yard is already full till 2016. Revenue coverage ratio is currently well supported at 2.5x and it may be too risky for this to rise beyond 3x given the lower visibility on material cost and forex.

Newbuild prices increased for Seaspan orders; decent margins. We understand that the majority of the 82k dwt bulk carrier orders would fill up additional slots that will become available in 2015 and 2016, as a result of efficiency improvement steps undertaken. Another positive note is that Yangzijiang has managed to increase the price of 10k TEU containerships to Seaspan by 3%, a midpoint of the previous option price and current market price. Gross margins for these new contracts are expected to be in the range of 15-20%.

One of the best Chinese shipyards. We favour Yangzijiang as the most competitive and profitable shipyard in China on the back of its strong execution, industry foresight and ability to move up the value chain more quickly than peers. The group is well-positioned to clinch higher value-add projects like mega containerships, mid-water semi-submersibles, LPG & LNG carriers. Valuation is undemanding at 1x P/BV in spite of its high ROE of 15% and 4-5% dividend yield. Maintain BUY and SOTP-based TP of S$1.45.