Excerpts from DBS report
Analyst: Pei Hwa HO
| Making its way against the tide Reiterate BUY; TP lowered to S$1.50, following earnings revision and a 10% discount to investment book given the economic slowdown in China.
Valuation is compelling at 0.6x P/BV against 9% ROE and 4-5% dividend yield. We believe its share price has priced in the 1Q weakness to a large extent and has yet to reflect the positives from its Chairman’s return. The stock was trading at ~S$1.50 prior to the negative news relating to the Chairman’s assistance with an investigation involving former government official which has now been completed. Stronger contract flow and progress in LNG venture are key catalysts that should drive the stock price closer to our TP. |
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| One of the world’s best-managed and profitable shipyards |
Core shipbuilding revenue ahead is backed by its order backlog of US$2.9bn (~1.5x revenue coverage) as at end 2019. 
Ren Yuanlin, executive chairman. NextInsight file photoInvestment segment provides stable recurring income. As the largest and most cost-efficient private shipbuilder in China, Yangzijiang is well positioned to ride on the sector consolidation and shipbuilding recovery.
The company’s strategy to move up into the LNG/LPG vessel segment strengthens its longer-term prospects.
Where we differ: We believe critical catalysts are Yangzijiang’s successful strategy to expand into the LNG carrier and tanker markets, and overall recovery in the shipping and shipbuilding segments leading to margin improvements.
Valuation:  Pei Hwa HO, analystOur target price of S$1.50 is based on sum-of-parts, pegged to 8x FY20F PE shipbuilding earnings, 1x P/BV for bulk carriers and 0.9x P/BV for investments. This translates into 0.9x P/BV, which is 0.5SD below its 10-year mean (1.4x). |
Key Risks to Our View: USD depreciation and hike in steel cost.
Revenue is denominated mainly in USD, and only half is naturally hedged.
If the net exposure is unhedged, every 1% USD depreciation could lead to a 1.5% decline in earnings.
Every 1% rise in steel costs, which accounts for about 20% of COGS, could result in a 0.8% drop in earnings.
Full report here.
