Yangzijiang upgraded to Buy by OCBC on order wins, attractive valuations

OCBC upgraded Yangzijiang Shipbuilding to Buy, citing improved valuations after the stock’s tumble and new order flow.

It noted the stock has already tumbled more than 40 percent from its peak in November, offering “good upside” to OCBC’s fair value, with the company also undertaking a share buyback on price weakness. It trimmed its fair value to S$1.18 from S$1.22.

The stock is trading at around 7.5 times blended 2018-19 earnings and a forward price-to-book ratio of 0.6 times, it estimated.

“With the group’s strong execution abilities, net cash position of 1.7 billion yuan and positive operating cash flows in the past four years, YZJ
has delivered a commendable performance compared to its peers,” OCBC said in a note on Tuesday.

It noted that the market had been concerned about the lack of new order flows, with US$270 million of orders announced in the first quarter.

But OCBC pointed to secured contracts, with nine orders announced in June worth a total US$578 million, with deliveries in 2020-2021. That brought its total contracts to 18 effective shipbuilding contracts worth US$846 million year-to-date, compared with US$2.1 billion in 2017 and US$820 million in 2016, it noted.

The stock ended Tuesday down 1.01 percent at S$0.98.