On Tuesday, Citi increased its price target on Yangzijiang Shipbuilding (YZJSGD:SP) (OTC: YSHLF) to SGD3.14 from SGD2.45, while maintaining a Buy rating on the stock. The decision comes in response to the company's strong order book and EBITDA margins in the first half of 2024.
Citi's analysis indicates an optimistic financial outlook for Yangzijiang Shipbuilding, with a significant increase in EBITDA and profit forecasts for the fiscal years 2024 to 2026. The forecasts for EBITDA have been raised by 15%, 8%, and 3% for FY24E, FY25E, and FY26E, respectively. Similarly, profit forecasts have seen an uptick of 17%, 8%, and 1% for the same periods.
The firm's future earnings are expected to be somewhat offset by anticipated higher depreciation and amortization (D&A) charges. These charges are a result of the company's planned RMB5 billion expansion and upgrade expenditures over the next one to two years. Despite this, the management's guidance suggests that new order wins will have a more substantial impact on financial performance from FY27E onwards.
Citi has adjusted its revenue assumptions for FY24E-FY26E, taking into account the new order wins and their timing. Nevertheless, revenue visibility is strong, potentially extending into FY29E, which is an improvement from the previously anticipated mid-FY28E. This extended visibility is anticipated to be confirmed when second-half 2024 results are disclosed.
The price target has been rolled over to FY25E based on a 10x price-to-earnings ratio (PER), which supports the increase to SGD3.14 and the continuation of a Buy rating. Citi has also highlighted that a key risk to their outlook would be a major slowdown in global trade, which could lead to order cancellations and impact the company's performance.
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