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Yangzijiang cut to ‘hold’ by OCBC after good run
While Yangzijiang Shipbuilding’s upward momentum may continue in the near term, OCBC Investment Research says upside potential for the stock is diminishing.

Yangzijiang has appreciated close to 48% from its trough in mid July over a span of just two and a half months.

However, analyst Low Pei Han says the stock is trading at 9.5 times forward earnings, above the five-year historical mean of 8.8x and 0.85 times book value which is close to its five-year historical mean of 0.9 times.

Low says these 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.

However, there seemed to have been a pause in the group’s share repurchases, says Low. Yangzijiang had started share buybacks in end May and continued till mid July with prices ranging from $0.86-$0.98/share. The last repurchase on July 17 was for 2 million shares at $0.86/share.

As of now, Low is monitoring steel prices, the RMB and new orders closely. While a weaker RMB works in Yangzijiang’s favour, 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.

As for new orders, Low continues to believe that the group is likely to hit its full year target of US$1.8 billion ($2.5 billion) by the end of this year, after securing new orders worth about US$0.98 billion so far.

It also has an outstanding order book of US$4.1 billion which should keep its yard facilities at a healthy utilisation rate up to 2020.

“Meanwhile, we tweak our estimates and our fair value estimate rises from $1.23 to $1.32,” says Low.

Year to date, Yangzijiang shares are down nearly 17% to $1.26.

Source: The Edge
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