Singapore analysts remain bullish about the prospects for Yangzijiang Shipbuilding despite a recent 20% spike in the company’s share price.
The shipbuilder’s decision to spin off its investments business into a separate listing on the Singapore Exchange (SGX) is being seen as a near-term catalyst.
YZJ Financial Holdings (YZJFH) is due to be spun out from Yangzijiang Shipbuilding via a distribution in specie to shareholders who will receive one YZJFH share for every one share they hold in the shipbuilder.
According to the company, this represents a dividend distribution of SGD 4.26bn ($3bn) or SGD 1.09 per share.
The company has already obtained in-principal approval from the SGX and is awaiting other regulatory approvals as well as shareholder approval from a soon to be convened extraordinary general meeting.
UOB Kay Hian analyst Adrian Loh also sees additional value in Yangzijiang’s fleet of 26 vessels, which last year generated a solid 40% gross margin in 2021 on the back of a 32% year-on-year increase in revenue.
“Our valuation of this fleet, based on current second-hand prices of similar ships, equates to over $687m or SGD 0.24 per share,” he said.
“This market-based valuation of its fleet is double that of Yangzijiang’s disclosure that its shipping assets had a relatively low carrying value of CNY 2.2bn ($345m) as at end-2021.”
Loh also highlighted that the company had a busy first quarter in 2022 delivering more than 12 vessels, in a holiday-shortened quarter due to the Chinese New Year in February.
“We also note that two of these deliveries were for the larger class of containerships which should generate higher shipbuilding margins for Yangzijiang,” he said.
Yangzijiang’s management has said the current Covid-19 movement restrictions have had “some disruption” on shipyard operations; however, it believes that the financial impact is not material so far.
However, Loh highlighted potential downside risk to earnings should China’s Covid-19 restrictions increase, given that the shipyard assets are entirely located in China.
“Should shipyard operations be affected, this would hamper the company’s ability to deliver on its target of 60 ships that it has planned for 2022, thus negatively impacting the company’s profitability as milestone payments would then be delayed,” he said.
Still, Loh has a target price for the shares of SGD 1.95, which is a further 20% upside on the closing price of SGD 1.60 on Monday.
Analysts at investment house CGS-CIMB are even more bullish on the shares with a target price of SGD 2.41 per share, up from its previous target of SGD 1.78.
