Seatrium and YZJ Shipbuilding Stocks Climb After Business Update Release, Here's Why

Seatrium's share price surged by 11.69% yesterday on the back of a substantial contract announcement, marking its largest single-day gain in nearly two years, followed by an additional increase of 1.74% on Tuesday. Meanwhile, Yangzijiang Shipbuilding (YZJ Shipbuilding) saw its share price climb by 3.11% to $1.990 on Tuesday after publishing a strong first-quarter business report, culminating in a year-to-date increase of over 45%.

Seatrium is the merger between Sembcorp Marine and Keppel Offshore & Marine – two marine & offshore engineering titans now sailing as one. The company specializes in providing rigs and floaters, offshore platforms, specialized shipbuilding, as well as repairs and upgrades.

1. Year-to-date 2024, the group achieved order wins of over S$11.4 billion

2. Achieved a net order book of S$25.8 billion, comprising 31 projects with deliveries till 2030

3. Successfully delivered LNG Bunker Vessel, Brassavola and completed 67 Repairs & Upgrades projects

4. Established a S$100 million Share Buyback Programme to further align its interest with shareholders

5. Share consolidation of every twenty existing shares into one consolidated share became effective on 9 May 2024

Yangzijiang Shipbuilding stands out as a premier Chinese shipbuilder, specializing in the crafting of commercial vessels such as bulk carriers, container ships, and LNG carriers. Celebrated for its innovative prowess and commitment to quality, YZJ has established a robust global footprint with significant operations spanning China, Singapore, and Europe.

1. Attained a record order book of US$16.8 billion year-to-date, surpassing the previous year's total of US$14.5 billion.

2. Reported a robust pipeline with 193 vessels scheduled for delivery by 2028, including a mix of 66 containerships, 47 bulk carriers, and 22 LNG/LPG/LEG/VLEC vessels.

3. Containerships dominate the order value at US$9.28 billion, followed by bulk carriers at US$1.88 billion, and LNG/LPG/LEG/VLEC contracts at US$2.09 billion, underscoring a diverse portfolio.

4. Emphasized that eco-friendly vessels constitute over half (54%) of new order-wins, showcasing a commitment to sustainability.

1. Global shipbuilding capacity consolidation enhances industry competitive dynamics: As trends toward larger, more sophisticated vessels and bulk order placements prevail, new ship orders are increasingly concentrated among top-tier shipbuilders with superior technology and production capabilities. The number of global shipyards receiving orders (at least one vessel of 1000+ GT annually) has plummeted from the 2007 peak of 768 to just 192 in 2023. The market share of orders secured by the world's top ten shipbuilding conglomerates has surged from just over 40% in 2008 to in excess of 70% in 2022.

2. Slumps in shipping efficiency could drive shipbuilding demand: Historical patterns indicate that geopolitical conflicts and public health that disrupt shipping efficiency can lead to increased shipbuilding orders as shipowners look to maintain or expand transport capabilities.

3. Ship replacement cycle on the horizon: With the average vessel lifespan being 20-25 years, there's an emerging cycle for the replacement of older ships, especially those from the last construction boom (2000-2011). Aging fleets, particularly oil tankers, are reaching a point where replacement is necessary due to inefficiency, high maintenance costs, and environmental concerns.

4. Environmental policies for shipping gradually take effect, promoting fleet renewal: As the shipping industry faces stricter environmental policies, such as the UN's net-zero emissions target by 2050 and the EU's inclusion of shipping in its emissions trading system and fuel regulations, the demand for new, eco-friendly ships is expected to rise. Shipowners must decide between retrofitting existing vessels or investing in new, environmentally compliant ships.

5. Global economic recovery: A positive economic outlook, as projected by the IMF, with a global growth rate of 3.2% for 2024, can lead to increased demand for material transportation. This, in turn, would drive the development of the shipbuilding industry as trade giants seek to meet their expanding shipping needs.

UOB Kay Hian is optimistic about Seatrium, as the company benefits from strong demand in the offshore oil and gas and renewable energy sectors. OCBC Investment Research has also expressed that Seatrium's proactive corporate actions have bolstered market confidence. The firm highlights Seatrium's recent corporate moves, including a 20-for-1 stock consolidation, a S$100 million share buyback program, and the early redemption of S$500 million worth of floating-rate bonds, as positive signals to the market.

In its business update, YZJ Shipbuilding mentioned that its "strong outstanding order book brings revenue visibility up to 2027." Citi Research analyst Luis Hilado, in a report, noted that Seatrium's recent contract wins for two new floating production storage and offloading vessels from Petrobras could provide long-term revenue visibility.

For now, Citi maintains its forecasts and outlook as it awaits further order wins and 1H results. The coming results will likely show the state of the company's contract revenue recognition and margins, the analyst says. Citi maintains a buy rating on the stock with a target price of S$2.16. Shares are last 1.7% higher at S$1.75.