Yangzijiang upgraded to Add by CGS-CIMB as orders could top expectations

CGS-CIMB upgraded Yangzijiang to Add from Hold, pointing to limited downside after the share’s recent tumble and the potential for higher-than-expected orders.

The stock has been the STI’s second-worst performer after StarHub, with YZJ falling around 30 percent year-to-date, CGS-CIMB noted.

“We think its share price has pessimistically priced in sharper drop in orders and margin erosion,” it said in a note on Tuesday. “We see opportunity to accumulate, with limited downside.”

YZJ could also see catalysts from stronger-than-expected orders and consensus profit upgrades, it said.

The shipbuilder won nine new shipbuilding orders in May valued at US$578 million, which should yield around 9 percent gross margin, on YZJ’s yuan and steel price assumptions, which were conservative compared with current levels, CGS-CIMB noted.

“If YZJ’s order momentum remains strong in the second half of 2018, its order win for the year could beat its own guidance and our forecast of US$1.8 billion,” it said. ” We believe the stable Baltic Dry Index (BDI, above 1,100) and rising newbuild prices could spur healthy orders in the bulk sector.”

The brokerage kept its target price unchanged at S$1.27. The stock ended Monday up 0.98 percent at S$1.03.

 

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