Yangzijiang Shipbuilding - OCBC Investment 2018-10-03: What A Run!


Yangzijiang Shipbuilding - What A Run!

  • Up 48% from mid Jul trough (see Yangzijiang share price).
  • May continue but upside diminishing.
  • Pauses on share buyback.

Stock has done well – up 48% from mid Jul trough

  • Having risen 38% since we reiterated our BUY on 8 Aug with our report, “Yangzijiang Shipbuilding - All Aboard!”, the shares of Yangzijiang Shipbuilding (YZJ) are now trading close to our fair value estimate.
  • The upward momentum of the stock has been strong, such that YZJ has appreciated close to 48% from its trough in mid Jul over a span of just two and a half months. While the momentum may continue in the near term, the upside potential for the stock is diminishing.
  • The stock is trading at 9.5x forward P/E (above 5-year historical mean of 8.8x) and 0.85x P/B (close to 5-year historical mean of 0.9x), which we believe are fair valuations, considering the street is forecasting earnings growth of -3% for 2019, and is forecasting ROE of ~9.2% for the next 12 months.

~ SGinvestors.io ~ Where SG investors share

Share buyback seems to have taken a pause

  • We also note that there has also seemed to be a pause relating to the group’s share repurchases – YZJ had started share buy backs in end May and continued till mid Jul with prices ranging from S$0.86- S$0.98/share (refer to table and chart in the PDF report attached for more details). 
  • The last repurchase was on 17 Jul for 2m shares at S$0.86/share. (See also the latest share buyback by SGX listed companies)

Monitoring steel prices, RMB and new orders

  • As highlighted in our reports, the weaker RMB works in YZJ’s favour. However, higher steel prices may weigh on margins. After a significant fall in the first quarter of this year, prices have been creeping up and are now close to this year’s highs (refer to chart in the PDF report attached).
  • As for new orders, we continue to believe that the group is likely to hit its full year target of US$1.8b by the end of this year, after securing new orders worth about US$0.98b so far. It has an outstanding order book of US$4.1b which should keep its yard facilities at a healthy utilisation rate up to 2020.
  • Meanwhile, we tweak our estimates and our fair value estimate increases from S$1.23 to S$1.32.
  • (Downgrade to HOLD). 

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2018-10-03
SGX Stock Analyst Report HOLD Downgrade BUY 1.32 Up 1.230