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Yangzijiang Shipbuilding Holdings Ltd (YZJSGD SP): More growth in the Shipbuilding industrial

• RE-ITERATE BUY Entry – 2.46 Target– 2.70 Stop Loss – 2.35
• Yangzijiang Shipbuilding Holdings Limited builds a wide range of ships. The Company produces a wide range of commercial vessels, mini bulk carriers, multi-purpose cargo vessels, containerships, chemical tankers, offshore supply vessels, rescue and salvage vessels, and lifting vessels.
• Record order backlog. China’s largest private-sector shipbuilder, Yangzijiang Shipbuilding, has achieved a new record with its order backlog exceeding US$16bn, driven by soaring global demand for tonnage. To manage the increased volume, the company has acquired over 200 acres of land adjacent to its shipyard and plans to invest over US$400mn in an expansion plant, including a 300,000-tonne drydock. This expansion will add 800,000 deadweight tons of annual capacity, enhancing China’s self-reliance in high-value-added shipbuilding. Yangzijiang is also establishing an advanced, digitalized production plant with a 5G industrial data network, reflecting a shift towards more technologically advanced processes. This growth is part of a broader trend among Chinese shipyards. According to shipbroker BRS, Chinese orderbooks are nearly full through 2027, with orders extending to 2029, indicating a strong future for the industry.
• Expansion into VLAC carriers. Yangzijiang Shipbuilding has secured a US$440mn deal with Nissen Kaiun for four 88,000 cubic meter very large ammonia carriers (VLACs), marking Yangzijiang’s entry into this segment. These ships are ordered under seven-year time charters with energy trader BGN and will be delivered between May 2028 and February 2029. Nissen Kaiun, owning about 200 ships including 10 very large LPG carriers and nearly 40 newbuilds, is responding to the high demand for LPG/ammonia carriers driven by the anticipated surge in low-carbon ammonia trade, especially from Japan and South Korea due to their decarbonization initiatives.
• New manufacturing facility. Yangzijiang Shipbuilding has entered into a framework agreement with Jingjiang City in Jiangsu Province, to acquire 866,671 square meters of land in Xinqiao Park for a new clean energy ship manufacturing base. This land includes 1,320 meters of Yangtze River shoreline, allowing for efficient expansion. Strategically located next to its existing facility, the new site will enhance productivity and operational efficiency. The company plans to invest three billion yuan (S$554.3mn) over the next two years, pending the results of a feasibility study and government approvals. The project will be executed in phases to ensure regulatory compliance. The approval of this project will allow the company to manufacture clean energy ships, expanding its manufacturing capacity.
• FY23 results review. Revenue for FY23 increased by 16.5% YoY to RMB24.1bn, compared to RMB20.7bn in FY22. Net profit increased by 57.0% YoY to RMB4.10bn in FY23, compared to RMB2.61bn in FY22. NPM increased by 4.4ppts to 17.0% in FY23, compared 12.6% in FY22.
• Market Consensus.

(Source: Bloomberg)

Singapore Technologies Engineering Ltd (STE SP): Deepening collaborations and partnerships

• RE-ITERATE BUY Entry – 4.38 Target– 4.70 Stop Loss – 4.22
• ST Engineering Ltd is a global technology, defence, and engineering group. The Company uses technology and innovation to solve problems and improve lives through its diverse portfolio of businesses across the aerospace, smart city, defence, and public security segments. ST Engineering serves clients worldwide.
• Collaboration to boost Cybersecurity. SPTel, a joint venture between ST Engineering and SP Group, has launched its Quantum-Safe Services, enhancing its National Quantum-Safe Network Plus (NQSN+) by integrating advanced quantum encryption products from ST Engineering, Nokia, and Fortinet. This initiative aims to provide comprehensive network protection against quantum threats. Appointed by Singapore’s Infocomm Media Development Authority, SPTel and SpeQtral are developing Southeast Asia’s first quantum-safe infrastructure, supporting the nation’s Digital Connectivity Blueprint. The services, designed for compatibility with existing IT infrastructures, secure data across physical, data link, and network layers using Nokia’s DWDM, ST Engineering’s encryptors, and Fortinet’s next-generation firewall. This initiative addresses the emerging “harvest now, decrypt later” threat and aims to fortify cyber defences in critical industries such as healthcare and finance. As cyber threats continue to rise globally, the demand for such services will increase, which would be beneficial for the adoption of ST Engineering’s encryptors.
• Strong order book. ST Engineering’s order book remains robust, valued at $27.7bn as of its first quarter 2024 business updates. The company anticipates delivering $6.5bn worth of orders for the remainder of the year. In the first quarter of 2024, ST Engineering secured additional contracts totaling $3.0bn. This includes $839 mn in the commercial aerospace sector, $1,645mn in the defense and public security market, and $542mn in the urban solutions and satcom industry. These new contract wins, along with a consistently strong order book, highlight the sustained high demand for ST Engineering’s services.
• Deepening LEAP engine support for Safra Aircraft Engines. ST Engineering recently announced that its Commercial Aerospace business has deepened its support for Safran Aircraft Engines1 by entering into a two-year agreement, with an option for extension, to provide module repair offload support for the CFM LEAP-1A and LEAP-1B engines. Under the agreement, Safran Aircraft Engines will offload module repair work on the high pressure turbine (HPT) rotor assembly and stage 2 HPT nozzle assembly of the LEAP-1A and LEAP-1B engines to ST Engineering. This collaboration addresses the growing MRO demand for LEAP engines as operators ramp up their flying operations. ST Engineering’s offload support augments Safran Aircraft Engines’ MRO capacity and optimises the turnaround time of engine shop visits for customers. This agreement strengthens the partnership with Safran Aircraft Engines and support for LEAP engines operators, and well positions the company to address the rising demand for quick-turn and performance restoration shop visits for LEAP engines.
• 1Q24 results review. Revenue rose by 18% YoY to S$2,703mn in 1Q24, compared to S$2,289mn in 1Q23, driven by double-digit YoY growth in its commercial aerospace and defence and public security segments. In the first quarter, its commercial aerospace revenue and defence and public security revenue grew 32% YoY to S$1.2bn and 14% YoY to S$1.1bn respectively.
• Market Consensus.

(Source: Bloomberg)

Dongfang Electric Corp Ltd. (1072 HK): Increased usage of renewable energy

• RE-ITERATE BUY Entry – 10.20 Target 11.20 Stop Loss – 9.70
• Dongfang Electric Corp Ltd is a China-based company mainly engaged in the manufacturing and sales of power generation equipment. The Company operates five major reporting segments: Clean and High-Efficiency Energy Equipment segment, Renewable Energy Equipment segment, Engineering and Trade segment, Modern Manufacturing Service Industry segment, and Emerging Growth Industry segment. The Company’s main products include water turbine generator sets, steam turbine generators, wind turbine generator sets, power station steam turbines and power station boilers as well as gas turbines. The Company distributes its products within the domestic market and to overseas market.
• Increasing use of renewable energy in China. China’s renewable energy utilization has reached or exceeded advanced international levels, demonstrating rapid progress in sustainable energy. The country has maintained strong momentum in renewable energy adoption, with a utilization rate of 97.6%, surpassing 95% for six consecutive years since 2018. Last year, newly installed renewable energy capacity rose to 290 million kW, 2.4 times that of 2022, accounting for 79% of the total new power generation capacity nationwide, making it the primary source of new power generation. This surge in capacity has spurred significant investments in solar, wind, and hydropower projects across the country. These efforts are part of China’s broader strategy to peak carbon emissions before 2030 and achieve carbon neutrality before 2060.
• Increased capacity. Dongfang Electric recently installed an 18 MW offshore wind turbine at a coastal test base in Shantou, Guangdong province. With a rotor diameter of 260 meters and a swept area of 53,000 square meters, this turbine can generate 72 GWh of electricity annually, sufficient to power approximately 36,000 households. Notably, this 18 MW offshore wind turbine is the largest of its kind currently installed in the world.
• Deal in Middle East. China’s Honghua Group, a subsidiary of Dongfang Electric, recently secured a contract with a major drilling company in the Middle East to deliver several 3000HP artificial island cluster well drilling rigs, valued at 1.5bn yuan. This contract highlights the global recognition of Honghua Group’s high-end smart drilling rigs and solidifies its leading position in the international market for advanced drilling technology. The drilling rigs, officially termed artificial island cluster well fast-moving smart drilling rigs, incorporate Honghua Group’s cutting-edge technology, integrating artificial intelligence with island cluster well drilling. This agreement signifies a milestone in the global expansion of China’s intelligent equipment and represents a significant achievement in high-quality Belt and Road cooperation, setting the stage for further international collaboration in the oil and gas industry.
• 1Q24 earnings. The company’s operating revenue rose to RMB15.1bn in 1Q24, +2.28% YoY, compared to RMB14.7bn in 1Q23. The company’s net profit fell by 11.1% YoY to RMB905.8bn, compared to RMB1.02bn in 1Q23. Basic earnings per share fell to RMB0.290 in 1Q24, compared to RMB0.327 in 1Q23.
• Market consensus.

(Source: Bloomberg)

AAC Technologies Holdings Inc (2018 HK): Riding the tailwinds of Apple’s new features

• RE-ITERATE BUY Entry – 31.0 Target 37.0 Stop Loss – 25.5
• AAC Technologies Holdings Inc. designs, develops and manufactures a broad range of miniaturized components that include speakers, receivers and microphones in the acoustic segment. The Company produces these components for mobile devices such as smartphones, tablets, wearables, ultrabooks, notebooks and electronic book-readers.
• Siri updates incoming. Apple plans to enhance Siri with generative AI, enabling it to control various apps more effectively. This upgrade aims to improve Siri’s understanding of user intentions and app functionalities, addressing previous challenges. A potential deal with OpenAI may integrate ChatGPT’s technology into iOS 18, making Siri more intuitive and context aware. The update is expected to boost iPhone sales, especially as Apple faces competition in China and slower growth in the US. Siri will support more natural language, follow-up questions, and text input, while also performing tasks based on on-screen content and drawing on personal context for more complex actions. On 10 June, Apple released an improved version of Siri and introduced AI features to a few applications. The enhancements announced by Apple will necessitate new components for the handset from AAC Technology, which in turn will benefit its acoustic business revenue.
• iPhone sales to improve. According to analysts, the anticipated demand for Apple’s new AI features, known as Apple Intelligence, is expected to result in a substantial increase in iPhone sales. This could potentially trigger what is known as an “iPhone supercycle.” These features will only be available on the iPhone 15 Pro or newer models, which may prompt many current iPhone users to upgrade. Apple Intelligence, currently in beta, will be available on the iPhone 15 Pro, iPhone 15 Pro Max, and devices with M1 chips or later. It will be integrated into iOS 18, iPadOS 18, and macOS Sequoia. This development may lead to a surge in sales of the iPhone 16 and might also give rise to a new AI App Store, which would significantly impact Apple’s market and boost iPhone sales. An increase in iPhone sales would also result in the need for more components from AAC Technology, benefitting its top lines.
• FY23 earnings. Revenue fell by 1.0% YoY to RMB20,419mn in FY23, compared to RMB20,625mn in FY22. Net profit fell 9.9% YoY to RMB740mn in FY23, compared to RMB821mn in FY22. Basic EPS fell 8.3% YoY to RMB0.63 in FY23, compared to RMB0.69 in FY22.
• Market consensus.

(Source: Bloomberg)

Toll Brothers Inc (TOL US): Affluence appeal

• BUY Entry – 140 Target – 160 Stop Loss – 130
• Toll Brothers, Inc. builds luxury homes, serving both move-up and empty-nester buyers in several regions of the United States. The Company builds customized single and attached homes, primarily on land that it develops and improves. Toll Brothers also operates its own architectural, engineering, mortgage, title, security, landscape, insurance brokerage, and manufacturing operations.
• Favourable macro tailwinds. Interest rate cuts are expected in the second half of the year which would directly translate to reduced mortgage costs, making homeownership more affordable for prospective buyers. Consequently, this will stimulate housing demand and support property prices, benefiting the overall real estate sector.
• Wealth-focused strategy. Toll Brothers’ strategic focus on luxury homes, communities and prestigious locations has shielded it from the adverse effects of higher interest rates by capitalising on the preferences of high-net-worth individuals. The luxury real estate market in North America remains robust due to wealthy individuals diversifying their portfolios, and viewing luxury properties as stable, long-term investments. Despite high mortgage rates, a record number of luxury homes were bought in cash in early 2024, with demand exceeding supply, especially in desirable locations like major cities and coastal areas. Affluent buyers prioritize homes with extensive amenities, larger spaces, and features supporting their lifestyles, including work-from-home setups, gyms, and eco-friendly practices. The market is expected to evolve with changing consumer demands and technological advancements, maintaining strong long-term returns despite high purchase costs, as real estate provides security and a haven for families. A declining interest rate environment is expected to further bolster demand for luxury housing as a wealth preservation and appreciation asset, aligning with the company’s target market. The favourable long-term outlook for the luxury housing market will position Toll Brothers for continued sales growth and reinforce its market position in the luxury housing market.
• Demand and development not slowing down. Toll Brothers has purchased multiple large plots of land and properties in expensive regions for development, showing no signs of a slowdown in the luxury home market. The property developer most recently purchased a 22-acre site in Downingtown with plans to construct 89 townhouses and parcels at 1130 and 1136 Horseshoe Pike for US$6.23mn. Additionally, it also previously purchased Stone Meadows Farm for US$40.5mn and a 21-acre site for US$2.64mn with plans to construct a 55-plus community.
• 2Q24 earnings review. Revenue rose by 13.1% YoY to US$2.84bn, beat estimates by US$180mn. Non-GAAP earnings per shares was US$3.38 missing expectations by US$0.77. For Q3, the company expects deliveries of 2,750 to 2,850 units and average delivered price per home US$950,000 to US$960,000. For FY24, the company expects full-year deliveries of 10,400 to 10,800 units and average delivered price per home of US$960,000 to US$970,000.
• Market consensus.

(Source: Bloomberg)

McDonald’s Corp (MCD US): Quick and cheap meal fix

• RE-ITERATE BUY Entry – 250 Target – 280 Stop Loss – 235
• McDonald’s Corporation franchises and operates fast food chain. The Company offers various food products and soft drinks, and non alcoholic beverages. McDonald’s serves customers worldwide.
• Signs of recession benefitting defensive stocks. Recent US economic data points to a potential slowdown. While inflation is cooling, the labour market is softening, consumer spending and confidence are waning, and manufacturing is contracting. These factors have spurred concerns about a soft economic landing, leading to sharp corrections in growth sectors and a shift of investor funds towards more defensive assets.
• Favourable macro outlook. High inflation has increased McDonald’s operating costs. At the same time, fast food chain peers have begun price wars to increase market share. McDonald’s has already launched a US$5 set meal. Operating profits are expected to improve as inflation costs fall. In addition, the high interest rate environment has caused McDonald’s property valuations to fall. As the interest rate cut cycle begins, the company’s property valuation increases are expected to drive a rebound in the stock price. McDonald’s current dividend rate is 2.52%, and its attractiveness has increased during the interest rate cut cycle.
• 2Q24 earnings review. Revenue was flat YoY at US$6.5bn, missing estimates by US$130mn. Non-GAAP earnings per shares was US$2.97 missing expectations by US$0.10. For FY24, the company expects to open approximately 2,100 restaurants in the full-year, contributing nearly 2% to systemwide sales growth and expects approximately 5% net restaurant growth till 2027.
• Market consensus.

(Source: Bloomberg)

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Trading Dashboard Update: Add Goldwind Science & Technology Co Ltd (2208 HK) at HK$4.3 and Dongfang Electric Corp Ltd. (1072 HK) at HK$10.2. Cut loss on BYD Co Ltd (1211 HK) at HK$223 and Goldwind Science & Technology Co Ltd (2208 HK) at HK$4.10.