J.P. Morgan upgraded Yangzijiang Shipbuilding (YZJ) to Overweight from Neutral as the successful spinoff and listing of Yangzijiang Financial Holdings (YZJFH) turned the company into a pure-play Chinese shipbuilder.
“We are positive on YZJ, viewing the Chinese shipbuilder as well-positioned to capitalize on the current shipbuilding cycle which is mainly led by containerships, dual-fuel and LNG vessels,” J.P. Morgan said in a note on 27 May.
“Moreover, YZJ’s shipbuilding margins are expected to register recovery in 2H22 supported by higher contribution from higher-margin containership vessels and better revenue-cost matching as higher margin contracts start to kick-in during 2023~24 delivery timeframe,” the note said.
J.P. Morgan cited key industry drivers from fleet renewal as carriers phase out “non-eco” vessels amid tightening environmental regulations and on the transition toward eco-friendly vessels and seeking efficiency-enhancing improvements.
In addition, margins are set to improve as steel prices normalize, and as the company moves into cotracts priced at higher steel prices, the note said.
LNG trade has been projected to surge, which will fuel demand for LNG carriers, J.P. Morgan said, noting YZJ is ramping up its technological learning curve to capitalize on the LNG vessel boom.
The bank raised YZJ’s target price to S$1.20 from S$0.86. Shares of YZJ ended Friday flat at S$0.975.