Yangzijiang Shipbuilding - OCBC Investment 2019-12-23: Chairman REN Returns

YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)

Yangzijiang Shipbuilding - Chairman REN Returns

YANGZIJIANG SHIPBUILDING (SGX:BS6) is one of China’s largest private shipbuilding companies and is renowned for its steady execution and good cost control. It has performed better than many other Chinese shipbuilders during the downturn and stands to benefit in a consolidating shipbuilding industry.

The investment side of the business is also growing in stature, and we value this segment at a discount to listed Chinese banks.
See Yangzijiang Share Price; Yangzijiang Target Price; Yangzijiang Analyst Reports; Yangzijiang Dividend History; Yangzijiang Announcements; Yangzijiang Latest News.

After more than 4 months since Yangzijiang Shipbuilding announced Executive Chairman Ren’s leave of absence, Mr. Ren has returned to office with effect from today, and will resume his duties with the group. According to Chinese financial news outlet Caixin, Mr. Ren had returned to his home on the evening of 20 December. Recall that Mr. Ren has been assisting in a confidential probe in Beijing.

In 3Q19, the group decreased its financial investments (termed “debt investment at amortised costs”). Total amount fell from RMB18.79b in 2Q19, to RMB14.85b in 3Q19 representing 33% of the group’s total assets. This led to a significant increase in cash and cash equivalents in the quarter, from RMB4.1b in 2Q19 to RMB9.2b in 3Q19.

As for the shipbuilding industry, global new orders declined 44% in DWT terms in 9M19 compared to a year ago, due to uncertainties related to global trade, economic outlook and ship-owners taking time to firm up their plans to cope with thee IMO 2020 rules on emissions. Till mid-November 2019, Yangzijiang Shipbuilding secured new orders for 16 vessels worth US$696m, bringing its outstanding order book to US$3.18b. Recall that the group clinched new orders worth US$1.46b in 2018.

The return of Chairman Ren removes a major overhang on the stock, and the market is now likely to focus more on fundamentals such as the new order flow of the group.
Based on the 20 December 2019 closing price of S$1.07, Yangzijiang Shipbuilding is trading at 7.5x cons. forward P/E, 0.7x forward P/B. which are relatively low.
For a significant re-rating to be sustained, more new orders have to be secured at healthy margins. We maintain our sum-of-the-part fair value estimate of S$1.39.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-12-23

SGX Stock Analyst Report BUY UPGRADE HOLD 1.390 SAME 1.390