SINGAPORE (Sept 4): Yangzijiang Shipbuilding is selling 137 million new shares to institutional investors at $1.53 each in a private placement exercise.
In a flash note last Thursday, DBS Group Research says the placement price seems reasonable, representing 4.07% discount to the weighted average trading price on Aug 29 of $1.5949 per share and 1.18x FY17 book.
Post placement, Yangzijiang’s share capital will be enlarged by 3.6% to nearly 4 billion shares while book value per share is lifted to $1.32.
Yangzijiang will raise net proceeds of $209 million. Up to 50% of the proceeds will be used to fund future M&As while the remaining will be utilised for general working capital and debt repayment.
“We believe the fund raising is a harbinger for M&As,” says analyst Ho Pei Hwa.
This could include the purchase of the remaining 20% stake in Xinfu shipyard which we estimate would contribute an incremental $20-25 million to bottomline or the acquisition of technology that could strengthen Yangzijiang’s capability and franchise in clean energy vessels
The M&A could also take the form of a partnership with a SOE yard that will pave the way for building high-margin military vessels, tapping on Chinese yards’ consolidation and government’s mixed ownership policy.
“Furthermore, we continue to believe the possibility of dual-listing in Hong Kong should not be ruled out, in the event of sizeable acquisitions that require demand for larger scale fund raising exercises,” says Ho.
Ho says Yangzijiang is well-positioned to ride the anticipated shipping and shipbuilding recovery. In addition to contract flow, near term strategic and earnings accretive acquisitions would also call for re-rating on the stock.
“Reiterate ‘buy’; target price unchanged at $1.70,” she adds.
As at 4.08pm, shares in Yangzijiang are trading 9.5 cents lower at $1.40.
