The team at OCBC Investment Research has kept its “hold” recommendation on Yangzijiang with a lower fair value estimate to 95 cents from $1.75 previously.
The lower fair value estimate will account for the spin-off of its investment arm, Yangzijiang Financial Holding (YZJFH). YZJFH will be listed on the Singapore Exchange (SGX) on April 28. Yangzijiang will trade on an ex-entitlement basis from April 22 onwards.
Yangzijiang’s net asset value (NAV) per share is expected to fall to about 87 cents after the spin-off from its previous NAV per share of $1.96 or RMB9.16.
“As Yangzijiang trades ex-entitlement with the spin-off, we lower our fair value estimate to reflect this as well,” the team writes in its April 22 report.
That said, it is possible to see a potential re-rating in the core shipbuilding business left in Yangzijiang since the spin-off removes an overhang for the stock, leaving for a cleaner, shipbuilding-focused entity, says the team.
“Indeed, the shipbuilding arm is seeing a recovery in the industry, and Yangzijiang has 157 vessels worth US$8.5 billion ($11.58 billion) in its orderbook. 12 new vessel orders were secured in 2HFY2021 as the group’s yards are full till financial year ending December 2024 (FY2024) and management remains selective on orders,” it adds.
See also: Test debug host entity
Potential catalysts identified for the counter include potential privatisation offers and spin-offs, a faster-than-expected upturn in the shipbuilding market, as well as accretive acquisitions in the region at “reasonable valuation multiples”.
On the flip side, investment risks include the deterioration of the macroenvironment, a downturn in the shipbuilding market, order cancellations and deferments, as well as asset impairments relating to investment segment.
UOB Kay Hian analyst Adrian Loh has kept his "buy" call and target price of $1.95 on Yangzijiang.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
Calling the group's shipbuilding business "materially undervalued", Loh highlights that at Yangzijiang's share price of $1.56 as at his report dated April 21, the shipbuilding group, excluding YZJFH, is trading at a P/B of less than 0.5x.
"Since its IPO in 2007, Yangzijiang has significantly grown and transformed its shipbuilding business, and in addition has the tailwind of high asset prices and charter rates that will benefit its shipping fleet," the analyst writes.
"Our pro forma sum of the parts (SOTP) valuation for Yangzijiang ex-YZJFH is $1.16," he adds.
In a note dated April 25, DBS Group Research analysts have also lowered its target price to $1.38 from $2.15 previously. The adjustment has excluded the investment arm that will be paying dividends to shareholders next week, reads the note.
"Based on the last close of Yangzijiang’s cum-distribution at $1.54, Yangzijiang’s share price of 96 cents ex-distribution implies a theoretical price of 58 cents for YZJFH," says the team.
Shares in Yangzijiang closed 57.5 cents lower or 37.34% down at 96.4 cents on April 22.
