DBS Group Research is keeping its “buy” recommendation on Yangzijiang Shipbuilding (YZJ) with a target price of $1.40 as the company is seeing a momentum in order wins.
On August 31, YZJ announced that it has secured a new contract for containerships worth some US$252 million ($342.2 million).
See: Yangzijiang wins new contract for containerships worth total of US$252 mil
Under this contract, YZJ will be building and delivering 12 1,800TEU containerships for SITC International Holdings Co (SITC). Out of the orders for the 12 vessels, six are firm orders worth US$126 million. These are accompanied by six option orders for identical vessels, to be exercised in three stages, two options each.
Adding to the new order update, YZJ has also secured orders for two 82,000DWT dry bulkers.
This brings the group’s new orders to 23 vessels year-to-date. The orders for the vessels are worth approximately US$700 million (not considering the value of the option orders). This makes up about 47% of its target of US$1.5 billion for 2020.
“This is certainly commendable given the pandemic and low industry contracting level, demonstrating Yangzijiang’s market leadership and capability,” says analyst Ho Pei Hwa in a September 1 report.
Ho is hopeful that YZJ will be able to meet its order target, as enquiries and negotiations with customers have picked up, which could lead to firm orders in the near future.
Meanwhile, YZJ’s successful strategy to expand into the LNG carrier and tanker markets, and overall shipping recovery should lead to margin improvements.
The analyst believes that the market has overpenalised YZJ for its debt investments, not realising most investments are backed by collateral of 1.5-2.5 times.
As it is, she sees the stock as a bargain as it is trading below cash of $1.13 per share and “an unjustifiably low” price-to-book value of 0.6 times despite superior financials of 8% ROE and more than 4 cents DPS, which represents some 4% in dividend yield. This represents a good opportunity for long-term investors.
As at 11.55am, shares in YZJ are trading at 92 cents or 0.6 times FY20 book and 6.9 times FY20 earnings, with dividend yield of 4.3%.
