SINGAPORE (May 2): The tide is expected to turn for the shipping industry. And DBS Group Research believes Yangzijiang Shipbuilding is well-positioned to ride the anticipated recovery.
The research house is keeping its “buy” recommendation on Yangzijiang, and raising its target price to $1.35, from $1.12 previously.
“Yangzijiang has gained market share in the downturn. It is now ranked number one in China and number four in the world by orderbook,” says DBS analyst Ho Pei Hwa in a report on Tuesday.
In the first quarter ended March, Yangzijiang saw a 49% rise in earnings to RMB 667.7 million yuan ($135.4 million) while revenue grew 73% to RMB 4.68 billion.
In a filing to SGX, executive chairman Ren Yuanlin said improved sentiment has led to a pick-up in new shipbuilding orders, as well as new buyers for several orders that were previously terminated.
(See also: Yangzijiang posts 49% rise in 1Q earnings to $135 mil)
“We expect new orders to almost double to US$1.5 billion ($2.1 billion) this year, from 2016’s US$823 million. Yangzijiang has secured US$318 million worth of new orders in 1Q17, making up 21% of our full year assumption,” says Ho.
In addition, Ho points to Yangzijiang’s solid balance sheet and undemanding valuation at 0.9x P/B as strong reasons to like the stock as a proxy to the shipping recovery.
“We arrive at a target price of $1.35, after applying 12x FY17F price earnings (PE) on shipbuilding earnings, 1.0x price-to-book value (P/B) for bulk carriers and 1x P/B for investments,” Ho says.
Shares of Yangzijiang Shipbuilding closed 3 cents higher at $1.18 on Tuesday.
