Why Yangzijiang Shipbuilding might not benefit from potential VLGC orders

Its expertise lies elsewhere.

With a number of Chinese firms reported to be gearing up to order older Very Large Gas Carriers to keep pace with imports, Yangzijiang Shipbuilding's Chinese yards may not be the direct beneficiary of such orders the shipbuilder specializes primarily in containerships and bulk carriers.

This is why other more experienced shipbuilders such as the state-owned China State Shipbuilding (CSSC) and China Shipbuilding Industry Corporation (CSIC) may be the ones to secure the new orders.

Here's more from DBS:

China building up a VLGC fleet? According to Platts, a number of Chinese firms are seeking older Very Large Gas Carriers (VLGCs). China does not have a VLGC fleet, but with imports expected to rise along with developments of several propane dehydrogenation plants, China may seek to cut costs by developing its own fleet for longdistance trips. For instance, China Oriental Energy (Donghua Energy) is building a 1.2m mt/year PDH plant for producing propylene at Zhangjiagang and is said to have placed orders for six VLGCs, with up to 16 options at a Chinese yard.

Potential orders for YZJ? But could be early days yet Platts’s sources said that discussions between China Oriental Energy and Yangzijiang Shipbuilding could be restarted, but a final agreement has yet to be reached. Meanwhile, we note that while YZJ’s Xinfu yard has plans to build large vessels and has an annual production capacity of up to 10 Very Large Crude Carriers (VLCCs), the group’s capabilities remain primarily in containerships and bulk carriers. Currently, China’s top VLCC yards are mainly held by China State Shipbuilding (CSSC) and China Shipbuilding Industry Corporation (CSIC), which are state-owned firms.

Aiming to be amongst the select few left standing. With more than 1,500 yards in China, YZJ’s CEO expects that more than half of the country’s yards will have to be closed down, and of the remainder, only 20% are likely to be profitable. In our view, what is imperative for YZJ is to continue its smooth execution, secure orders (albeit at almost breakeven levels), scale up the value chain by building green vessels and developing its offshore capabilities, while waiting for the industry consolidation to run its course. Should it be one of the few large yards left standing when the dust has settled, YZJ would then find itself in a stronger position than before. Maintain HOLD with S$0.99 fair value estimate.