RE: Share Price8 Apr 2015 23:50
Yangzijiang Shipbuilding Holdings
YAZG.SI YZJSGD SP
EQUITY: CAPITAL GOODS
Price catalysts abound in 2Q15F
Time to accumulate one of the most profitable yards
in Asia, backed by strong order backlog
Maintain Buy with a TP of SGD1.56, an 18% upside potential
We retain our Buy rating for YZJ and TP of SGD1.56, which is based on 1.2x
forward P/B on BVPS of CNY6.1 as of end-FY15F. We believe there are
several catalysts for YZJ’s share price from 2Q15F.
BDI’s slow rebound from mid-February might get a seasonal boost
The Baltic Dry Index (BDI) has stayed below the 800-level for more than three
months for now, with ship owners running ships at below cash cost breakeven.
The rebound from the record and unsustainably low of 509 in mid-February to
last Thursday’s 588 should receive new support from the seasonal upswing for
iron ore and grains seaborne trade globally in 2Q-3Q15F, and the rise in ship
demolition activities YTD in 2015. We expect the possible BDI rebound to be
positive for the investor sentiment on YZJ, which is the leading global yard for
dry bulk carriers, as the correlation between BDI and YZJ’s forward P/B is 0.8,
and P/E is 0.7 (refer to our initiation report, published on 5 Jan 2015).
Near-term boost from impending dividend payout on FY14 earnings
We expect YZJ to pay its one-tier tax exempt dividend of SGD0.055 per share
for FY14 in May, after the shareholders’ annual general meeting on 30 April.
This implies a 4.2% dividend yield in the near-term. In the long-term, we
expect YZJ to raise its dividend payout to SGD0.06 per share for FY15F as we
expect the group to return to net cash position by end-2015F.
We expect earnings in FY15F to surprise market expectation positively
We expect YZJ’s 1Q15 results to beat consensus, with our net profit estimate
for FY15F being 25% above consensus. We believe the market has not fully
factored in: 1) the up to CNY356mn of general provisions (made in 4Q14) that
can be gradually unwind in 2015F, as YZJ exits its real estate-related held-tomaturity
products; 2) better-than-expected shipbuilding margins; and 3) writebacks
of contingency provisions made on its maiden jackup rig order.
Year-end 31 Dec FY14 FY15F FY16F FY1
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