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Friday, December 04, 2020 – 2:35 pm
YANGZIJIANG Shipbuilding (YZJ) is a “buy out of conviction,” DBS Group Research said on Friday, noting that the company’s stock has underperformed, with emerging value.
In a research note, DBS analyst Ho Pei Hwa said that YZJ is trading at an “unjustifiably low” 0.5 times the price-book value (P / BV). This is despite the company having “superior finances” of 8 percent return on equity and a sustainable dividend per share of more than four Singapore cents, representing a dividend yield of about 4.4 percent. hundred.
He noted that YZJ has underperformed its regional peers since early November, dragged down by the selling pressure of MSCI’s rebalancing. The stock was left out of the recent rally in equities and revolving interest in cyclicals as investors sought to position themselves for economic recovery on the advance of vaccines.
While regional pairs have seen share gains between 4 percent and 38 percent since Nov. 1, YZJ saw its share price drop 1 percent.
“We believe this is largely due to overselling and selling pressure resulting from the removal of MSCI,” said Ho, referring to the removal of YZJ from the MSCI Singapore index in November.
The MSCI cantilever was removed after rebalancing on November 30, it added.
“We believe the current share price is at an inflection point that investors should not miss,” Ho said. “The stock is set to bottom out as fundamentals improve.”
The research team has a price target of S $ 1.40 on YZJ. The target price is based on a valuation of the sum of the parts and represents a 54 percent increase at the close of Thursday from S $ 0.91.
The report noted that YZJ is currently trading 2 standard deviations (SD) below the P / BV mean, in contrast to its Singapore and Chinese peers, which are 0.5 to 1 SD below the mean. Shares of YZJ’s South Korean pairs are trading above average.
“In our opinion, Yangzijiang is undervalued and probably incorrectly priced, trading at just 0.5 times P / BV, which is 2 SD below its five-year average, a big discount to its peers despite a much stronger balance sheet, profitability and dividend yield, “said the analyst.
He added that the valuation gap is set to narrow, with YZJ shares better reflecting current fundamentals if they were trading 1 SD below the median at S $ 1.20.
Ms Ho also pointed out that YZJ has a distinctive economic moat as China’s largest and most profitable private shipbuilder, and is well positioned to take advantage of the shipping recovery. YZJ’s share price has been quiet, even though shipping fees have been trending up since the middle of this year.
DBS said industry order momentum could be stronger than expected in 2021. YZJ has already achieved US $ 1.26 billion earned orders to date, more than in 2019 despite challenges from Covid-19. and the research team does not believe this has been fairly reflected. in the behavior of the share price.
According to DBS, the main risks for YZJ are a potential increase in the cost of steel, as well as currency risks. An increase in the cost of steel could raise the cost of goods sold. Currency risks can also affect earnings, as earnings are denominated in USD, which could affect earnings if USD depreciates and exposure is not hedged.
YZJ’s shares were trading at 90.5 Singapore cents as of 2:16 p.m. Friday, down 0.5 cents or 0.6 percent.
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