Yangzijiang Shipbuilding - OCBC Investment 2020-09-28: Diversifying Its Portfolio

YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)

Yangzijiang Shipbuilding - Diversifying Its Portfolio

Since our last HOLD-rated report on 4 May 2020, Yangzijiang Shipbuilding's share price has posted flattish performance – the stock has been trading within the S$0.90 – S$1.05 range in the last few months and closed at S$0.98 on 25 September 2020, compared to the closing price of S$0.985 prior to our 4 May report. In comparison, the broader market, as measured by the STI, was down ~6% over the same period.

In 1H20, Yangzijiang Shipbuilding (SGX:BS6) secured new orders of 15 vessels worth a total of US$517m, which was more than double that of 1H19.
Recall that Yangzijiang Shipbuilding clinched new orders for 21 vessels worth a total of US$830m in 2019. As at end June 2020, the group’s outstanding order book was US$2.6b, made up of 62 vessels. This will keep the group’s yard facilities at a healthy utilization rate till early 2022 and provide a stable revenue stream for at least the next 1.5 years.

Meanwhile, according to TradeWinds (“China’s Yangzijiang Shipbuilding gears up for VLCC debut”, 23 September 2020), Yangzijiang Shipbuilding is looking to enter the VLCC segment by acquiring a “half-built” newbuilding from another yard.
According to TradeWinds’ sources, the group is in talks with Jinhai Intelligent Manufacturing (formerly Jinhai Heavy Industry) to buy the 30,000 dwt crude carrier that has been idle in the yard for more than two years. This vessel was originally ordered by GC Tankers, a unit of HNA Group.
Recall that Yangzijiang Shipbuilding made its debut in the crude tanker segment when it acquired a half-built vessel by Rongsheng in 2017. Should Yangzijiang Shipbuilding enter the VLCC segment, it would be consistent with management’s previous comments that it seeks to grow its product portfolio and VLCC is one of the new areas of focus.

Currently (based on the closing price of S$0.98 on 25 September), Yangzijiang Shipbuilding's share price is trading close to 0.6x book and near our fair value estimate of S$1.05. Low valuations of Chinese banks (Yangzijiang Shipbuilding also has a financing business) as well as a lacklustre shipbuilding industry would weigh on the stock. It is hence important for the group to diversify its portfolio and broaden its product range, which it seems to be doing with regards to the VLCC segment.
See Yangzijiang Shipbuilding Share Price; Yangzijiang Target Price; Yangzijiang Analyst Reports; Yangzijiang Dividend History; Yangzijiang Announcements; Yangzijiang Latest News.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-09-28

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.05 SAME 1.05