SINGAPORE (Mar 4): DBS Group Research is maintaining Yangzijiang Shipbuilding at “buy” with $1.82 target price, saying it is one of the world’s best managed and profitable shipyards.
See: Yangzijiang reports 23% rise in FY18 earnings to $727 mil on higher shipbuilding and trading revenue
Yangzijiang is also the prime beneficiary of a stronger USD and among the best proxies for exposure to a recovery in the shipping and shipbuilding sectors, adds the research house.
Meanwhile, Yangzijiang’s core shipbuilding revenue ahead is backed by its healthy order backlog of $5.3 billion as at end Dec 2018 or double its revenue coverage.
Better returns from the investment segment provides upside to its recurring income stream. Its strategy to move up into the LNG/LPG vessel segment through a partnership with Mitsui also strengthens the longer-term prospects of the company.
In a Monday report, DBS analyst Ho Pei Hwa says the stock’s valuation remains undemanding at 0.9x P/BV, or 10% discount to global peers, despite its attractive 11% ROE, 3.5% yield and solid balance sheet with 94 cents net cash.
DBS is valuing Yangzijiang based on sum-of-parts (SOP) methodology.
“We arrive at a target price of $1.82, after applying 9x FY19F PE on shipbuilding earnings, 1x P/BV for bulk carriers and 1x P/BV for investments.” says Ho, “our TP translates into 1.1x P/BV, which is in line with 0.5SD below its 10-year mean.”
To recap, Yangzijiang reported a 22% y-o-y fall in 4Q18 revenue but saw an 84% rise in net profit to RMB1.2 billion ($243 million). This brings full-year net profit to RMB3.6 billion which is a 23% increase compared to FY17.
Elsewhere, OCBC Investment Research has Yangzijiang on “hold” saying most of its positives have been priced in with the stock is trading at about 9 times forward earnings and 0.9 times book.
“We fine-tune our estimates and our FV rises from $1.41 to $1.44,” says analyst Low Pei Han in a Monday report.
To be sure, shares in Yangzijiang are up about 70% since the middle of July. From its trough in July 2018, the stock price rose by about 51% before OCBC downgraded it to “hold” with its Oct 3 2018 report, “What a run!”
“We upgraded it to “buy” with our Nov 8 2018 report “Come onboard again”, and the stock rose another 12%, based on Mar 1 closing," says Low.
The results beat OCBC and the Street’s expectations, aided by RMB494 million of other income in 4Q18 as well as RMB344 million of forex gains. There was also reversal of impairment loss of RMB99 million on other investment at amortised costs and RMB91 million on loans to non-related parties (microfinance) in 4Q18.
As at 12.28pm, shares in Yangzijiang are trading at $1.44.
