SINGAPORE (Jan 28): Yangzijiang Shipbuilding has struggled to rebuild investor confidence after a probe by Chinese authorities involving executive chairman Ren Yuanlin saw the counter plunge 39% in August 2019 to a low of 86 cents on Aug 15.
Shares in Yangzijiang recovered to close at $1.14 on Dec 23, 2019, when Ren returned to office after a long leave of absence to assist in investigations.
But the rapid spread of a coronavirus originating from Wuhan is sending shivers up China's largest non-state-owned shipbuilder.
Yangzijiang was among the biggest losers on the Straits Time Index (STI), which opened 2.08% lower at 3,172.73 points on Tuesday following the Lunar New Year break, before hitting a day low of 3,144.10 points – some 2.96% lower than its previous close of 3,240.02 points on Jan 24.
The index, which tracks the performance of the top 30 companies listed on the Singapore Exchange (SGX), recovered slightly to close at 3,181.25 points, down 58.77 points or 1.81%.
All 30 STI constituents closed lower for the day. But Yangzijiang recorded one of the largest declines, dropping 5.3% or 5.5 cents to close at 98.5 cents.
So far this year, shares in Yangzijiang have shed 15.1% since closing at $1.16 on Jan 2.
Like other S-Chips, or China-based companies listed on SGX, market watchers are expecting Yangzijiang shares to remain shaky amid the outbreak of the deadly Wuhan virus.
Already, outlooks for S-chips have been rattled on the back of expectations of declining revenues and ability to win contracts.
Coming just weeks after Ren’s return had positively impacted the company’s share price, the coronavirus is untimely for Yangzijiang.
Following Ren’s retun on Dec 23, 2019, DBS Group Research analyst Ho Pei Hwa had called it the beginning of a rebound for the group.
Ren’s return is a “very positive development” for Yanzijiang, as it could well remove the “major overhang” in the group’s share price that was a cause for concern to investors and shareholder over the few months he was absent, Ho noted in a Dec 23 report.
Ren’s absence had resulted in rumors that he was “missing”, which caused quite a stir in Yangzijiang’s counters.
He had in fact been assisting in the investigations of a corruption case involving Liu Jianguo, a “veteran political patron” of the shipbuilding industry, who is also Yangzijiang’s largest investor.
Liu is under probe by the Central Commission for Discipline in Beijing, the anti-graft body of China’s communist party.
In the most recent brokerage reports between November and December 2019, DBS and CGS-CIMB Research had “buy” or “add” calls on the counter, with target prices of $1.68 and $1.45 respectively.
This is on the back of the shipbuilder’s proven track record to win contracts and remain profitable.
“As the largest and most cost-efficient private shipbuilder in China, Yangzijiang is well positioned to ride on the sector consolidation and shipbuilding recovery,” noted Ho in a Nov 15 report.
She added that the company’s move into the LNG/LPG vessel segment is a further boost to its longer-term prospects.
For now, the impact of the coronavirus on the company’s order book is left to be seen, even as market watchers expect a dwindle amid reluctance to export from China.
With Yangzijiang operating out of Jiangsu, the long term implications to the company is left to be seen.
Other S-chips such as China Aviation Oil and China Everbright have also been down, with the former tumbling 6.5% and the latter dropping 4.8% on Tuesday.
* Updated to reflect correct target prices from DBS Group Research and CGS-CIMB Research. We apologise for the error.
