Yangzijiang Shipbuilding

First of likely more LNG carrier orders

Secured its first LNG carrier orders; YTD order wins at US$4.08bn

YZJSB clinched its first order for two 175,000 cubic meters (CBM) liquefied natural gas (LNG) carriers. These are YZJSB's first GTT Mark III LNG carrier orders after obtaining the GTT licence on 8 Sep 2022.

This win brings YZJSB's YTD order wins to US$4.08bn and orderbook to c.US$10.75bn.

These LNG carriers are scheduled for delivery over 2025-2026 for a European customer.

We estimate the two LNG carriers were secured at market price of US$240m each. A recent 174k CBM LNG carrier clinched by Korean shipbuilder Hyundai Samho for Jan 2026 delivery was priced at US$246.9m while Daewoo priced a set of similar vessels for MISC/Petronas at US$214.5m. Hence we estimate that YZJSB secured the vessels at the higher end of the range at US$240m each.

Sky rocketing rates could lead to more orders

YZJSB explained that 170,000-180,000 CBM is the conventional LNG carrier size currently as these are most suitable for LNG exports from the new US Gulf liquefaction terminals through the enlarged Panama Canal and across the Pacific to Asia.

The European energy crisis has resulted in strong demand for LNG and LNG vessels. Some of the LNG vessels are being used as floating storage facilities, causing charter rates to spike. Clarksons Shipping Intelligence Network expects the tight market driven by energy security concerns to persist in 2023 while the implementation of environmental regulations may provide additional market support (e.g. by encouraging slower steam turbine vessel speeds).

3- to 6-month spot charter rates for 174k CBM vessels are at a record US$330k/day and 1-year time charter rates are US$260k/day (+160% vs. 2019 level of US$100k/day). Strong profitability among owners could keep demand for 170,000-180,000 CBM LNG carriers steady over the near term, which benefits YZJSB.

3Q22 update could be on 14 Nov; reiterate Add and TP of S$1.63

Our TP is based on 10x CY23F P/E (2-year historical average). YZJSB currently trades at 8x CY23F P/E and 1.4x CY22F P/BV vs. FY21-24F EPS CAGR of 16% and CY23F ROE of 16%.

Re-rating catalysts: faster-than-expected delivery of vessels, improving economic environment in China. Key downside risks: order cancellations, spike in steel cost affecting margins.