1H26 results briefing sends positive signals: FY27E-28E gross margin expected to remain above 35%

Overview

The report summarizes key takeaways from Yangzijiang Shipbuilding Holdings Ltd’s 1H26 earnings briefing. Supported by the execution of high-priced orders, a favorable vessel mix, and strict order selection, the company delivered strong revenue and profit growth. Management believes recent orders can still support gross margins above 35% in FY27E-28E and remains confident in the rebound in large containership orders and the FY26 order intake target. At the same time, RMB appreciation, rising equipment costs, new industry capacity, and a gradual maturation of earnings growth remain the main constraints.

Core views

First, the company did not follow some shipyards in cutting prices to fill capacity; even though industry newbuild prices have fallen by about 5% from their 2023-24 peaks, the profitability of orders secured in 2024-26 remains broadly stable. Second, the rebound in large containership demand exceeded previous expectations, and the company will continue to selectively participate in high-quality tenders while prioritizing containerships as a product. Third, an aging fleet and insufficient ordering of large bulk carriers over the past several years may drive a recovery in demand for 2030 delivery slots. Fourth, Hongyuan is expected to add about 20% to the group’s shipbuilding capacity from 2027, though margins at the new yard may be lower than mature yards during the initial ramp-up phase. Fifth, operating fundamentals are positive, but the target price is below the current price and the 2026E-28E net profit CAGR is about 5%, so a Neutral view is maintained.

Analysis framework

The report makes its assessment by combining management Q&A at the earnings briefing, order and capacity data, the shipbuilding business characteristics of percentage-of-completion revenue recognition, exchange-rate and input-cost sensitivities, and FY26E-FY28E financial forecasts; valuation uses a 2028E P/E methodology and is compared with historical forward valuations for the Asian shipbuilding sector.

Methodology notes

• Earnings forecastPercentage-of-completion revenue recognition analysis

  Shipbuilding revenue is recognized according to construction progress

  Revenue does not directly correspond to the number of vessels delivered; it also depends on vessel type, size, contract value, and construction progress, so revenue cannot be inferred solely from the 31 vessels scheduled for delivery in 2H26.

• Sensitivity analysisRMB exchange-rate gross margin sensitivity

  Impact of net USD exposure on gross margin

  About 20%-30% of USD exposure is naturally hedged through USD-denominated equipment procurement, around 20% is covered by customer prepayments, and the remaining net exposure is about 50%; based on this, the roughly 6% period-end appreciation of the RMB in 1H26 corresponds to an estimated gross margin impact of about 1.1-1.5 percentage points.

• Relative valuation2028E P/E valuation methodology

  Comparison of target P/E with industry historical valuation

  The target price applies a 6.7x 2028E P/E, representing an approximately 40% discount to the Asian shipbuilding sector’s 11.1x historical forward P/E, balancing the company’s high-quality containership business, high profitability, and net cash advantage against slower mature-stage growth.

• Industry cycle analysisOrder, slot, and fleet renewal framework

  Using slot supply and fleet aging to assess demand

  Slots at major shipyards have primarily been occupied by vessel types such as containerships over the past several years, while the bulk carrier fleet has continued to age. Based on this, the report judges that inquiries for 2030 delivery slots from large bulk carriers may strengthen.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Yangzijiang Shipbuilding Holdings Ltd（YAZG.SI）

  The listed company stock directly covered by the report

  Strengths

  High-quality containership business, industry-leading profitability, strong net cash balance sheet, long-term order visibility, and a relatively attractive dividend yield.

  Weaknesses

  Existing yards are close to optimal efficiency, Hongyuan may be the last major capacity expansion, and 2026E-28E earnings growth is maturing.

  Comparison

  The target valuation represents an approximately 40% discount to the Asian shipbuilding sector’s historical forward P/E; compared with Songfa and CSSC, the company is expected to have slower net profit growth, but stronger earnings quality and balance sheet.

  Risks

  RMB appreciation, rising steel and equipment costs, industry price-cutting competition, order delays, slower-than-expected yard ramp-up, and a downturn in the shipping cycle.

Key data

• 1H26 revenueRmb17.5bnUp 36.2% YoY, mainly driven by high-priced orders from 2023-24 entering the construction phase.
• 1H26 net profit attributable to shareholdersRmb5.4bnUp 28.4% YoY, with a net margin of 30.6%.
• 1H26 group gross margin36.2%Up 1.7 percentage points YoY; shipbuilding gross margin was 37%.
• 7M26 new ordersUS$1.96bn, 42 vessels in totalThe FY26 full-year target is US$4.5bn, and management remains confident in achieving it.
• OrderbookUS$22.4bn, 256 vessels in totalAs of June 30, 2026, deliveries extend to 2030, and 2029 slots are close to full capacity.
• Hongyuan capacity contributionApproximately 20%Expected to bring about a 20% increase to group shipbuilding capacity after full integration in 2027.
• Impact of RMB appreciationGross margin down about 1.1-1.5 percentage pointsEstimated based on the RMB’s roughly 6% period-end appreciation in 1H26 and about 50% net USD exposure.
• Equipment cost changesEquipment up about 15%, main engines up more than 20%These are cumulative increases over the past two years, highlighting the importance of selecting high-margin contracts.
• FY26E-FY28E net profit CAGRApproximately 5%Earnings drivers will gradually shift from capacity expansion to order execution.
• Valuation and target price6.7x 2028E P/E; S$3.90The target P/E represents an approximately 40% discount to the Asian shipbuilding sector’s 11.1x historical forward P/E.

Impact & implications

Operationally, higher-quality orders, a rebound in containership demand, and Hongyuan’s capacity expansion improve the visibility of medium-term revenue and margins, with FY27E-FY28E gross margins expected to remain above 35%. From a valuation perspective, the current price already fairly fully reflects the advantages of a high-quality business, high profitability, net cash, and dividends, while the target price implies downside versus the current price; therefore, positive operational changes are not yet sufficient to support a more positive stock rating.

Risks

• Further RMB appreciation will compress the translated gross margin of USD contracts, and the company has stopped adding new FX forward contracts.
• Equipment prices have risen about 15% over the past two years, and main engine prices have increased by more than 20%; if contract prices cannot rise in tandem, margins may come under pressure.
• Expansion of China’s shipbuilding capacity may trigger price-cutting competition and weaken the profitability of future new orders.
• New orders in the first seven months of FY26 have only completed part of the US$4.5bn full-year target, and the timing and mix of the remaining contract signings remain uncertain.
• Margins at Hongyuan and YAMIC may be lower than mature yards during scale-up or ramp-up phases.
• If global trade, container freight rates, and shipowner capital expenditure weaken, newbuild demand may decline or orders may be delayed.
• Delays in the advancement of decarbonization regulations may cause demand for dual-fuel retrofits, LNG-related retrofits, and terminal businesses to materialize later than expected.

What to watch

• Whether new orders during the remainder of FY26 can reach the US$4.5bn target, as well as contract prices and margins for large containership orders.
• RMB/USD movements and their actual impact on gross margins in 2H26 and FY27.
• Whether FY27E-FY28E shipbuilding gross margins can remain above 35%.
• Hongyuan’s construction completion before end-2026, remaining capex of about Rmb800mn, and integration progress in 2027.
• Utilization of 2029 and 2030 slots, and whether inquiries for large bulk carriers can convert into formal orders.
• Changes in equipment, main engine, and steel prices, and whether the company can pass on costs by raising USD contract prices.
• Subsequent progress in vessel retrofitting demand, the share of gas carrier orders, and the LNG terminal business model.