SINGAPORE (Dec 23): DBS Group Research is maintaining its “buy” call on Yangzijiang Shipbuilding with an unchanged target price of $1.68, representing a 57% upside for the stock.
In a regulatory filing on Dec 22, Yangzijiang reported that its executive chairman Ren Yuanlin was set to return to office on Dec 23. He was on leave for four months to assist in a government probe.
See: Yangzijiang's Ren to resume work after assisting with graft probe
Although the group has issued no statement on the investigation citing confidentiality, 66-year-old Ren was said to be aiding Beijing’s anti-graft body to investigate Jingjiang city official Liu Jianguo.
Liu was the party secretary of Jingjiang city where Yangzijiang’s shipyards are located. He was reportedly arrested on Dec 20 on bribery charges.
News of Ren’s return appears to have had a positive impact on the company’s share price. As at 12.54pm, shares in Yangzijiang are trading seven cents higher, or 5.6% up, at $1.13. This, according to the brokerage, could be the begining of a rebound for the group's share price.
According to DBS analyst Ho Pei Hwa, Ren’s return is a “very positive development” for Yangzijiang, as it could well remove the "major overhang" in the group's share price that has been a cause for concern for investors and shareholders over the course of the past four months.
Yangzijiang had been ranked as one of the sector’s top companies but news of Ren’s absence – announced on Aug 8 – caused the share prices to tumble 30% to close at $1.00, which had resulted in the company calling for a trading halt.
Even after the halt was lifted on Aug 14, the stock’s selloff showed no sign of abating as shares plunged a further 51 cents, or 37%, to a 2.5 year low of 86 cents.
“We highlighted in our previous reports that Yangzijiang’s share price correction from the $1.50 level following Ren’s leave was unwarranted because his leave of absence to assist in a federal government investigation was not related to the company’s shipyard business,” says Ho.
“We believe that Ren’s return should remove the stock’s overhang and re-rate it closer to pre-correction level,” she adds.
