Singapore-listed Yangzijiang Shipbuilding has been identified as a potential privatisation candidate, according to one local analyst.
The Chinese shipbuilder is described as a “deep-value” stock as its potential net cash is greater than its current market capitalisation.
“We view Yangzijiang as an attractive buyout candidate, given that the value of the current portion of its debt investments plus its net cash are more than its current market capitalisation,” UOB Kay Hian analyst Adrian Loh said.
“Its potential net cash is SGD 3.7bn ($2.7bn) or SGD0.94 per share versus its current market capitalisation of SGD 3.64bn or share price of S$0.93. This means investors are potentially buying Yangzijiang shipyards for free.”
Loh told investors in a research note that China’s tightening liquidity situation was also “positive” for Yangzijiang’s debt-investment business.
“China is currently experiencing a liquidity shortage despite the PBOC’s injection of funds in August which was the largest fund injection since January 2020,” Loh said.
“China’s seven-day repurchase rate — the benchmark indicator of interbank borrowing costs — rose to its highest since May and has stayed elevated since then.”
Yangzijiang has restarted its share buy-back programme and to date has bought back 11m shares
UOB Kay Hian
Loh said following the Covid-19 shutdown, Chinese banks have invested CNY 1.1 trillion ($160bn) in government bond issuance to help rebuild the economy and that as a result, banks were now “hoarding cash and charging higher lending rates” to each other.
“With lower liquidity in the system and borrowing costs spiking, we believe Yangzijiang’s debt investments could potentially earn higher returns in the next three to six months,” said Loh.
“During its second quarter results briefing, the company had conservatively guided it expects the annual interest on its bond investments to range 10-12% versus historical levels of 13-15%.”
In addition, Loh says Yangzijiang restarted its share buy-back programme on 4 September and to date has bought back 11m shares for a total of SGD 10.3m, or about SGD 0.93 per share.
The analyst also said he sees “no risk” to Yangzijiang’s dividends, despite forecasting a 17.7% year-on-year decline in 2020 full-year net profit.
“We do not expect dividends to be negatively impacted, unlike other companies in the same sector or even in sectors which traditionally have been viewed as safe,” he said.
“Last year, Yanzijiang paid a final dividend of SGD 0.045 per share and we forecast the company to pay a similar dividend this year. This equates to a yield of 4.8% at current share price.”
Yangzijiang’s year-to-date newbuilding order wins now total $714m following the recent order for six 1,800-teu feeder containerships from SITC.
On top of that China’s largest privately-owned shipbuilding has outstanding options for vessels worth a total of $1.3bn. Loh estimates that its order haul will reach $1bn this year.
A spokeswoman for the shipbuilder told TradeWinds that the company has “never indicated any intention” to privatise or delist from the Singapore Exchange (SGX).
“Being an SGX-listed company and as one of the STI index stocks indeed helps to enhance the trust that the customers and business associates have in Yangzijiang, given the compliance and transparency,” she added.
