Excerpts from DBS Group Research report

Analyst: Ho Pei Hwa

Liu Hua2 4.2018CFO Liu Hua. NextInsight file photoDuring the investor conference call (concall) hosted by DBS, the CFO of Yangzijiang, Ms Liu Hua, reassured investment community that Chairman’s assistance in investigation is not related to the Group and operations are carrying on as usual.


Key takeaways from the concall:

Yangzijiang 

Share price: 
$0.97

Target: 
$1.82

Shipbuilding business is in good hands. While Executive Chairman, Mr Ren Yuanlin, has been the prominent figure of Yangzijiang, his son, Mr Ren Letian has succeeded him as CEO since Mar-2015, after rotating to manage various divisions of the shipyard for nearly 10 years prior to his appointment.

RenLeTian1 4.2017Ren Letian succeeded his father as CEO in March 2015. Photo: CompanyThe shipbuilding business has done well in the past four years under the new CEO’s leadership as Chairman took a step back to focus on the Investment segment.

Ability to secure contracts should not be impacted. Existing shipbuilding customers who have expressed concerns over this incident involving the Chairman are comforted by the clarification. This is not expected to affect the shipyard’s ability to clinch newbuild contracts.

Management remains confident of securing US$1.5-2.0bn worth of new orders this year, despite slow YTD wins of ~S$209m. The order pipeline includes high-value mega vessels such as 13.9k / 23k TEU containerships and 210k dwt / 326k dwt bulk carriers with newbuild prices ranging from US$50-150m for each vessel. Some potential contracts are in advanced to final negotiations and could conclude in 2H19.


Operations of JV yard with Mitsui officially starts in August. The official commencement of the JV yard has taken several months due to the clearance from regulatory authorities such as licensing and anti-trust rule.

Nevertheless, the parties started preparation work shortly after the formalisation of the partnership, such as LNG design, worker training and construction of bulk carriers at Taichang yard. Cleaner energy vessels remain the longer-term growth strategy of Yangzijiang. Not only does it have a more promising demand outlook, newbuild LNG carriers are also expected to yield double-digit gross margins as compared to single digit for conventional containerships and bulk carriers.

Investment portfolio is under control. During the Chairman’s leave, CEO will assume his role in the investment arm. The CEO is probably even more prudent than his father and prefers to keep the size of the total portfolio at around Rmb10bn (vs current ~Rmb15-16bn) ideally. The returns from these investment hover around 10%, mostly backed by collateral.

Bankers are supportive. Bankers have expressed confidence with Yangzijiang. As far as we understand, this event should not trigger loan reviews etc. Stock price seems to have over-reacted.

Management felt that the massive selldown on Yangzijiang’s shares on market rumours was unwarranted. While most investors are understandably concerned, some shareholders in HK/China, who are more familiar with such events, have expressed their confidence in Yangzijiang.

Our thoughts: We maintain our view as highlighted in report: Yangzijiang Shipbuilding: Clearing the air. We believe the clarification should alleviate some concerns but Chairman’s assistance in the investigation will likely remain as an overhang and cause volatility in share price, aggravated by short-sellers, until the dust settles.

pei hwa ho"Stock is now trading at 0.6x PB, near its cash level, representing 25%/65% discount to its global and Chinese peers, notwithstanding its highest ROE and dividend yield. We estimate that including financial assets, net cash accounts for c.95 Scts out of its book value per share of ~S$1.55.”

-- Ho Pei Hwa (photo),
Analyst, DBS Group Research

Share price tanked ~25% as the news unfolded and a further~25% upon resumption of trading.

While stock has since bounced off the low, it has lost almost one quarter of its market cap despite the yard’s non-involvement in the investigation as well as intact operations and fundamentals of the group at this point.

In our opinion, more clarity on Chairman’s investigation, and strong contract flows could restore investors’ confidence to remove the share price overhang.


Full report here. 


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