DBS Group Research 2015-07-07: Yangzijiang - CRUISING AHEAD with Potential Catalysts of Dual-listing, Contract Wins, Shipping Recovery

CRUISING AHEAD  


Potential dual-listing to drive re-rating; decent dividend yield. 

  • While the stock has done well, we see potential re-rating from probable dual-listing in Hong Kong to fund M&A. 
  • In addition, Yangzijiang offers a decent dividend yield of 4% or 5.5 Scts per share on the back of stable earnings and cash flow. 

A clear winner in consolidation of China’s shipbuilding industry. 

  • As the largest and most cost-efficient private shipbuilder in China, Yangzijiang is amongst the handful Chinese yards that have waded into the high-end vessel space to battle their Korean rivals, and is well positioned to benefit from the post- consolidation recovery of shipbuilding markets, alongside shipping recovery. 

Riding out industry cycles with solid management and healthy order backlog. 

  • Yangzijiang has emerged stronger in the past few cycles with Executive Chairman, Mr Ren Yuanlin at the helm. Mr Ren, ranked 82 in Lloyd's List's Top 100 most influential people in shipping, is highly respected for his great foresight, strategic sense and cost/cash management. 
  • Healthier order backlog of US$4.6bn at high revenue coverage of 1.9x vis- à-vis global peers do not just provide earnings visibiliy but is also a testament to Yangzijiang’s market leadership. 

Valuation: 

  • We value Yangzijiang based on sum-of-the-parts (SOTP) methodology to better reflect the valuation for the various segments. 
  • We arrive at a target price of S$1.62, after applying 8x FY15F price earnings (PE) on shipbuilding earnings, 0.5x price-to-book value (P/BV) for bulk carriers, 1x P/BV for investments, and a 25% discount to the net present value (NPV) of its property project. 

Key Risks to Our View: 

  • USD depreciation and hike in steel cost Revenue is denominated mainly in USD, and only half is naturally hedged. 
  • Assuming the net exposure is unhedged, every 1% USD depreciation could lead to a 2% earnings decline. Every 1% rise in steel costs, which account for about 20% of COGS, could result in a 1.1% drop in bottomline. 
  • Overhang from oustanding warrants Theare are 330m oustanding warrants (approx. 8.6% of outstanding shares if fully exercised) expiring on 29 Apr 2016. 
  • The exercise price is Rmb6.602 or S$1.42 per share based on an exchange rate of Rmb4.65/SGD.

(HO Pei Hwa)

Source: http://www.dbsvickers.com/




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