YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)
Yangzijiang Shipbuilding - Huge Discount To Singapore Yards
- YANGZIJIANG SHIPBUILDING (SGX:BS6)’s order wins YTD totalled US$696m, with 16 vessels on order. Order book stood at US$3.18bn for 83 vessels.
- Yangzijiang is trading at 5-year trough of 0.6x CY19F P/BV, a 50% discount to Singapore yards.
- Catalysts are stronger orders and the chairman’s return to duty.
- Maintain ADD and Target Price of S$1.45, based on SOP of 1x CY19F HTM and shipbuilding B/V.
IMO 2020 hope for shipbuilding order
- We could see more orders in 2020 when ship owners are clearer on the implementation of the IMO 2020 emission regulations. We believe that higher freight rates as a result of IMO 2020 could also spur the shipbuilding order momentum.
- YTD order wins totalled US$696m with 16 vessels on order. Order book stood at US$3.18bn for 83 vessels. We have factored in US$1.4bn in new orders for FY20F.
Margin lower but still have buffer from provisions write-back
- In its recent 3Q19 earnings, Yangzijiang recorded lower shipbuilding gross margins of 14% (vs. 2Q19’s 18%). Going forward, we believe that shipbuilding margins could be in the range of 14-16%, utilising the Rmb654m balance of provisions for onerous contracts in the balance sheet.
Potential for higher dividend
- Management had scaled back on investments in assets held to maturity (HTM). Therefore, cash on hand rose to Rmb9.2bn as at 9M19, or c. S$0.46 per share.
- With little capex required, we believe there is a potential for higher dividends. Our DPS of Rmb0.20 is conservative.
Maintain ADD and Target Price of S$1.45
- We think Yangzijiang’s share price weakness is due to market concerns over the absence of leave by its Executive Chairman Ren Yuanlin, who is assisting in a confidential investigation by China government authorities. We think his return is the key catalyst for the stock. The downside risk is a negative outcome from the investigations.
- We believe the success of Temasek’s partial offer in Keppel Corp (SGX:BN4), which could push Singapore yard share prices above book valuations, could spur interest in Yangzijiang as it is trading at a significant discount to Singapore yards at 0.6x CY19F P/BV, despite firmer earnings and a stronger balance sheet.
- See Yangzijiang Share Price; Yangzijiang Target Price; Yangzijiang Analyst Reports; Yangzijiang Dividend History; Yangzijiang Announcements; Yangzijiang Latest News.
LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2019-12-09
SGX Stock
Analyst Report
1.450
SAME
1.450
