YANGZIJIANG SHIPBLDG HLDGS LTD
BS6.SI
Yangzijiang Shipbuilding: - Significant Overseas M&A Coming Up?
- Down 13% post placement announcement.
- Await news of acquisitions.
- Maintain HOLD.
Price eases after placement announcement
- After the share placement announcement on 31 Aug 2017, Yangzijiang Shipbuilding’s (YZJ) share price has dropped 13% from a high of S$1.625 on 30 Aug to S$1.41 as of yesterday’s close.
- Recall that 137m new shares (represents 3.6% of existing share capital) will be placed out at S$1.53/share to raise net proceeds of about S$209m. Up to half of this will be used to fund new investments and business expansion through acquisitions, JVs and/or strategic alliances, with the remainder meant for working capital and general corporate purposes, such as repayment of bank borrowings.
Financially robust
- As of 1H17, the net-cash group had RMB6.3b in cash and cash equivalents (excludes RMB335m restricted cash), RMB6.0b of current held-to- maturity financial assets, RMB1.1b of current available-for-sale financial assets and RMB724m of financial assets at fair value through profit or loss.
- Under non-current assets, there were RMB4.6b of held-to-maturity financial assets and RMB200m of available-for-sale financial assets. This is against current borrowings of RMB5.2b and non-current borrowings of RMB801m.
Awaiting news of overseas acquisitions
- With these significant resources, there have been questions on the need to raise funds, unless the group is preparing to undertake significant M&A ahead.
- Another possible explanation could be that the placement adds to cash at the listed platform level, as a significant portion of cash may be with the subsidiaries in China, while increased scrutiny over capital movements after certain high-profile incidents in China have led to more capital controls. Hence the placement would allow YZJ to undertake more significant overseas acquisitions.
- Whichever the case, time will tell with regards to the use of the proceeds. As for the stock, we believe that a fair amount of new orders expectation has been baked into the share price, as mentioned in our earlier report.
- We tweak our estimates to account for the placement and adjust our P/B for the shipbuilding segment from 1.3x to 1.2x, in line with the decline in industry average, leading to a fair value estimate of S$1.48. Maintain HOLD.
Low Pei Han CFA
OCBC Investment
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http://www.ocbcresearch.com/
2017-09-25
OCBC Investment
SGX Stock
Analyst Report
1.480
Down
1.580
