SINGAPORE (Mar 18): Yangzijiang Shipbuilding’s share price has tanked some 16% since the outbreak of the Covid-19. However, the counter has bucked the trend of other stocks in the benchmark Straits Times Index (STI), which have recently been on the downward trend.
In a Tuesday report, DBS Group Research analyst Ho Pei Hwa notes that Yangzijiang has outperformed the STI by some 12%. In addition, the group is now trading at what the brokerage terms a “compelling” valuation.
“Valuation remains compelling at 2SD below 5-year average price/book value (P/BV) of 0.5 times,” says Ho, adding that the group’s return on equity and dividend yield stand at 8% and 5% respectively.
In addition, Yangzijiang provided both current and potential investors with a glimmer of hope on Monday with its announcement of a new shipbuilding contract for up to 10 vessels, amounting to a total of US$1.15 billion ($1.63 billion).
The contract, inked with investment firm Tiger Group, was also one of the largest in the group’s history.
The group has not only secured orders to build two units of 14k TEU containerships worth US$230 million, but also has options to build eight similar units which could total to a maximum of US$920 million.
See: Yangzijiang secures up to 10 new contracts totalling $1.6 billion
Ho says that the two firm orders lifts the group’s year-to-date wins to some US$334 million, translating to 17% of the brokerage’s full year order wins assumption of US$2 billion.
“Assuming all options are exercised this year, it would contribute to nearly half of Yangzijiang’s full year order wins target,” says Ho.
“However, we might not see that coming through soon given the current macro uncertainties,” cautions Ho.
Ho shares that another catalyst for the stock includes stronger contract flows and progress in the liquefied natural gas (LNG) carrier space through its joint venture (JV) partner Mitsui.
DBS is reiterating its “buy” call on Yangzijiang with a target price of $1.50, representing an 87% upside for the stock.
As at 12.19pm, shares in Yangzijiang are trading 2.5 cents higher, or 3.1% up, at 83.5 cents. This translates to a price-to-book ratio of 0.52 times and a dividend yield of 5.2% for FY2020F according to DBS valuations.
