CGS-CIMB Research analyst Lim Siew Khee believes Yangzijiang Shipbuilding shareholders can unlock more value pursuant to the company’s plan to list its debt investment business on the SGX Mainboard via dividend-in-specie.
She has reiterated her “add” rating for Yangzijiang with an unchanged target price of $1.91.
See: Yangzijiang shareholders to receive spin-off shares proportionally in the form of dividend in specie
Lim notes that following the spin-off, the debt investment business will venture into asset management and direct investments not restricted to China. “We believe the existing lending business could remain, though it may be gradually phased out if asset management proves to be more lucrative. This mitigates the volatility from net interest income and credit risks,” she adds.
Lim estimates some RMB17 billion ($3.5 billion) of assets will be transferred to the new listed company, comprising RMB10.9 billion in net debt investment balance in 3Q2021, investments in venture capital funds worth RMB1.9 billion, and cash balances of RMB3.9 billion.
She noted that Yangzijiang has typically achieved a return of 10% from debt investments, based on gross profit margin. “Assuming the new [listed company] is able to keep up with its 10% return targets and invest into long-term assets, including REITS or private equity funds, we believe the market could value the new listco up to 12 to 15 times P/E” she says.
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Lim points out that any upside or premium on valuations could come from stronger-than-expected growth in assets under management (AUM), as well as through investments into ESG-related assets. She notes that peers are trading at a P/E ratio between 15 to 22 times.
She projects Yangzijian’s new listed company to produce an annual income of some $280 million, based on the $3.5 billion assets to be transferred and assuming a profit after tax margin of around 8%. Based on the P/E range of 12 to 15 times P/E, she estimates the company’s potential valuation at between $3.4 billion to $4.2 billion, or between 87 cents to $1.09 per share.
As at 3.36pm, shares in Yangzijiang are down 1 cent or 0.76% lower at $1.30.
