Yangzijiang Shipbuilding - DBS Research 2019-07-17: Strategic & Synergistic Move Into LNG Terminal Space

YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6) | SGinvestors.io YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)

Yangzijiang Shipbuilding - Strategic & Synergistic Move Into LNG Terminal Space

  • Yangzijang Shipbuilding acquired 55% stake in Odjfell Terminal at Jiangyin, which currently handles mostly petrochemical products.
  • Plans to expand and build LNG storage terminals.
  • Synergistic move to tap fast growing LNG demand and establish network with LNG carrier owners for newbuild orders.
  • Maintain BUY; Target Price S$1.82.



What’s New

  • Yangzijang Shipbuilding (SGX:BS6) has acquired a 55% stake in Odfjell Terminal (Jiangyin) (OTJ) from Norwegian tanker shipping company Odfjell for a consideration of US$46.2m (~S$62.9m), funded by internal resources. The remaining 45% stake is held by Jiangsu Garson Gas.
  • Operational since 2007, OTJ owns and operates a tank terminal, which handles various types of petrochemical products and provides complete terminal services for petrochemical distribution in the upstream of Yangtze River region. Based on Odfjell’s company website, OTJ has 22 tanks with a total storage capacity of 99,800cbm, of which 30,000cbm is stainless steel storage capacity. There are eight berths for coasters, barges and deep-sea tankers up to 50k dwt with a maximum draft of 15m alongside.


What’s the impact?


Valuation.

  • The valuation translates to cheap, we understand there is ample plans to expand into space.

Rationale.


Financial impact.

  • The acquisition is not expected to have a material impact on Yangzijang Shipbuilding’s financials in the near term. The consideration accounts for merely ~1% of Yangzijang Shipbuilding’s book value. Nevertheless, this is a synergistic move and more capex could follow once the license is obtained.
  • Key risks hinge on the successful application of the LNG terminal license and execution of this new business. We find comfort in Yangzijang Shipbuilding’s excellent execution and proven track record since its listing in 2007.


Recommendation


Maintain BUY and Target Price S$1.82.

  • Yangzijang Shipbuilding’s valuation remains global peers, notwithstanding its more attractive 9 Scts net cash per share. It remains a prime proxy for exposure to a recovery in the shipping and shipbuilding sectors.
  • Yangzijang Shipbuilding is due to release its 2Q19 results on 5 Aug (after market close). We expect decent net profit of Rmb800- 900m, similar to 1Q19.





Pei Hwa HO DBS Group Research | https://www.dbsvickers.com/ 2019-07-17
SGX Stock Analyst Report BUY MAINTAIN BUY 1.820 SAME 1.820



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