A recovery in demand for new bulk carriers has helped Singapore's worst-performing stock in 2016 become its best this year.
Yangzijiang Shipbuilding Holdings, which specialises in dry-bulk carriers, has rallied 83 per cent this year to lead the benchmark Straits Times Index (STI).
The Chinese shipbuilding firm has made a comeback after it won 13 contracts worth US$318 million (S$433 million) in the first quarter, about 40 per cent of the US$823 million worth of orders it won last year. Its share-price gain this year is over five times that of the STI, which is heading towards its best showing in five years with a 15 per cent advance.
The bulk-shipping industry is in the midst of a recovery and scrapping of older vessels is creating demand for new ones, underpinning Yangzijiang.
The group yesterday posted a 73 per cent jump in earnings to 719.9 million yuan (S$146 million) on the back of a 27 per cent rise in revenue to 3.79 billion yuan for the second quarter ended June 30.
Earnings are still expected to be under pressure for the next few years as the rebound in orders has been limited amid an oversupply of vessels since the financial crisis. The shipping industry has been in a downturn since the crisis as weak global trade led to bankruptcies and order cancellations globally.
Investors may be willing to look past near-term earnings weakness if Yangzijiang can win more contracts, particularly since the sector's performance tends to be driven by the outlook on the shipping industry, said Ms Corrine Png, chief executive officer of research firm Crucial Perspective .
Bigger rivals like Sembcorp Marine and Keppel Corp, which focus on oil rigs, have seen their earnings weighed down, with crude plunging over 50 per cent since mid-2014 and an oversupply in the market.
Yangzijiang's advance this year has reversed a 26 per cent drop in 2016, though the stock remains below a 2015 peak. "Yangzijiang's main product is dry-bulk carriers; Sembcorp Marine and Keppel Corp are mainly rigs, which are still facing probably quite a huge overhang from oversupply," said KGI Securities analyst Joel Ng. "There's an oversupply in shipping too, but... the trend is pointing towards a rebalancing in terms of supply and demand for dry-bulk carriers."
The firm's new order flow for this year looks to be on track for US$1.2 billion, according to a report by HSBC Global Research.