Yangzijiang Shipbuilding (SGX: BS6), or YZJ, was the top-performing blue-chip stock in Singapore last year.
The Chinese shipbuilder saw its share price soaring on the back of record-high orders that boosted its order book to an all-time high.
However, shares of YZJ plunged close to 28% last week after hitting an all-time high of S$3.32 on 20 February.
Investors should be curious to know what happened to precipitate this plunge, and whether the share price can witness a rebound.
Let’s find out.
A hefty fee on Chinese-built vessels
On 21 February, the US Trade Representative’s (USTR) office published a notice that laid out its proposed fees and other shipping restrictions on Chinese vessels.
These proposals came amid a US probe into China’s shipping dominance over the past 20 years.
The USTR published a January 2025 report that showed China’s share of global shipbuilding tonnage has increased to more than 50% in 2023, up from just 5% back in 1999.
These proposals include port entrance fees of up to US$1 million per vessel owned by Chinese maritime transport operators, or a US$1,000 charge per net tonne of the vessel’s cargo capacity.
Non-Chinese maritime transport operators who operated Chinese-built vessels will pay even more, at US$1.5 million per port entry.
Companies with more than 50% Chinese-built ships within their portfolio will pay US$1 million per entry regardless of origin.
The fee drops progressively to US$750,000 for fleets with 25% to 50% Chinese-made vessels and US$500,000 for fleets with less than 25%.
Other proposals include mandating that a portion of US exports be shipped on US-flagged or US-built vessels.
These new taxes may cause existing maritime players to place orders with US shipyards instead of YZJ, thereby impacting the Chinese shipbuilder’s ability to garner contracts.
Although this proposal is pending review on 24 March, there is still much uncertainty swirling around how this new policy will be implemented and monitored.
YZJ delivered a strong set of earnings
Meanwhile, YZJ reported a strong set of earnings for 2024, buoyed by its record-high order book.
Revenue rose 10.1% year on year to RMB 26.5 billion, driven by both its shipbuilding and shipping segments.
Gross profit jumped 40.6% year on year to RMB 7.6 billion as gross margin expanded from 22.4% to 28.7%.
Net profit surged 61.7% year on year to RMB 6.6 billion.
Free cash flow soared by 65.7% year on year to RMB 11.9 billion.
In line with the good results, YZJ declared a final dividend of S$0.12, significantly higher than the S$0.065 paid out a year ago.
The shipbuilder more than tripled its order win target of US$4.5 billion by snagging shipbuilding contracts worth US$14.6 billion for 2024.
This brought its outstanding order book to S$24.4 billion as of 31 December 2024.
Management is targeting order wins of US$6 billion for this year.
Not as bad as expected
YZJ may have suffered a sharp selldown in the wake of the USTR news, but the announcement may not be as bad as expected.
For one, Chinese shipyards account for nearly half of global shipbuilding capacity, so it is not practical for shipping lines to avoid placing orders with shipbuilders such as YZJ.
Korean yards are also at full capacity while US yards are not competitive as they cost two to three times more than Asian yards.
Also, shipping companies are likely to pass on any additional charges from the taxes to their customers via higher surcharges, meaning the shipping lines’ customers will have to bear the extra cost.
Also, a Citi report estimated that the potential increase in costs to shippers will be just around US$100 per container.
Elsewhere, YZJ also has other growth plans and is not sitting still.
There is its capacity expansion plan titled “Project Hongyuan” which will cost around RMB 3 billion and is scheduled for completion in 2027.
The group is also expanding its LNG terminal business with a total capital expenditure of RMB 2 billion.
The new terminal is being constructed and is slated for completion in the first half of 2027.
Get Smart: Caution reigns
Investors should note that management projected order wins of US$ 6 billion before the USTR news broke.
Hence, they should be watchful of any revisions to this target in light of these new potential regulations.
They should also closely watch the review on 24 March to see if the new proposals are passed.
While the initial knee-jerk reaction appears excessive, investors will do well to be cautious in light of the ongoing uncertainty and the potential for YZJ’s order wins to be lower than expected.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
