Riding the wave: Yangzijiang poised for growth as shipping sector restructuring gathers steam

The number of Chinese shipyards has already dwindled to 700.

Chinese shipbuilding giant Yangzijiang is set to benefit as recent policy changes on China’s shipping and shipbuilding sector suggest a firmer push for shipyard consolidation.

According to Maybank Kim Eng, the number of Chinese shipyards has already dwindled from more than 3,000 in 2010 to about 700, but needs to be cut further. Yangzijiang was one of 51 yards to receive policy support in a recent government white list.

“We expect a funnelling of orders to “white-list” yards to hasten the demise of unlisted yards. For the first time, the State Council has issued suggestions for developing the shipping industry. These include encouraging ship owners to scrap inefficient vessels for modern ones. Shipbuilders should benefit from orders by ship owners optimising their fleets.

Here’s more from Maybank Kim Eng:
YZJ can capitalise on this, given its: 1) technological capability. It was the first to deliver 10k TEU containerships in China and has new high value products such as 14K/16K TEU containerships & LPG tankers; 2) strong financials; and 3) execution record.

These should appeal to ship owners and YZJ could emerge with a bigger market share. YZJ leads in China’s market with the highest new orders YTD and largest order book, in CGT.

With USD1.4b of new orders as of Aug 2014, our forecasts of USD2.1b/2.5b for FY14E/15E should be met. Upside could come from shipyard consolidation. Core shipbuilding fundamentals are strong, though key risk is the realisable value of its CNY13b HTM assets.

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