Yangzijiang Shipbuilding (YZJSGD SP) - DBS Research 2017-09-04: Raising Equity For Future M&As

Yangzijiang Shipbuilding (YZJSGD SP) - DBS Vickers 2017-09-04: Raising Equity For Future M&As YANGZIJIANG SHIPBLDG HLDGS LTD BS6.SI

Yangzijiang Shipbuilding (YZJSGD SP) - Raising Equity For Future M&As

  • Raising c.S$209m through private placement of 137m new shares at S$1.53 per share.
  • Implies valuation of 1.18x book; represents 4% discount to weighted average price on 29 Aug.
  • Potential acquisitions – remaining 20% stake in Xinfu yard, and those relating to clean energy and military vessels.
  • Reiterate BUY; TP unchanged at S$1.70.



What’s new 

  • Yangzijiang is placing 137m new shares to institutional investors at S$1.53 per share.


What’s the impact? 

  • The placement price seems reasonable, representing 4.07% discount to the weighted average trading price on 29 Aug of S$1.5949 per share and 1.18x FY17 book (based on S$1.30 per share). Post placement, share capital is enlarged by 3.6% to 3,968.8m shares while book value per share is lifted to S$1.32.
  • Yangzijiang will raise net proceeds of approx. S$209m. Up to 50% of the proceeds will be used to fund future M&As while the remaining will be utilised for general working capital and debt repayment.
  • We believe the fund raising is a harbinger for M&As, which in our view include: 
    1. The purchase of the remaining 20% stake in Xinfu shipyard which we estimate would contribute an incremental S$20-25m to bottomline;
    2. The acquisition of technology that could strengthen Yangzijiang capability and franchise in clean energy vessels; 
    3. Partnership with a SOE yard that will pave the way for high margin military vessel contracts, tapping on Chinese yards’ consolidation and government’s mixed ownership policy.
  • Furthermore, we continue to believe the possibility of duallisting in Hong Kong should not be ruled out, in the event of sizeable acquisitions that require demand for larger scale fund raising exercises.


Recommendation 

  • Maintain BUY on Yangzijiang. Our SOTP-based TP of S$1.70 is largely intact given that the marginal dilution is offset by the higher net cash on hand. 
  • As the largest and most cost-efficient private shipbuilder in China, Yangzijiang Shipbuilding (Yangzijiang) is well-positioned to ride the anticipated shipping and shipbuilding recovery. 
  • In addition to contract flow, near term strategic and earnings accretive acquisitions would also call for re-rating on the stock.




Pei Hwa Ho DBS Vickers | http://www.dbsvickers.com/ 2017-09-04
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.700 Same 1.700



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