Yangzijiang Shipbuilding shares tumble; JPMorgan downgrades amid 3Q18 order concerns

Shares of Yangzijaing Shipbuilding tumbled 11.68 percent to S$1.21 by 15:17 SGT on Friday, off an earlier low of S$1.19, after JPMorgan downgraded the stock to Neutral from Overweight, saying that third quarter orders were “probably weak.”

“We think the stock usually trades on orders,” it said in a note on Thursday.

JPMorgan noted that the stock had rallied more than 20 percent over the past month or so, even amid declines for the Straits Times Index.

“We think the rally was driven by optimism regarding the JV with Mitsui and potential LNG carrier orders,” JPMorgan said. But it added, “little attention has been paid to the recent order flow, in our opinion, which makes us believe that the weak third quarter order is yet to be priced in.”

Data from shipping and shipbuilding researcher Clarksons indicated Yangzijiang obtained orders for only six bulkers and two containerships between 1 July and 15 October, JPMorgan said.

“The vessels are also small,” it said, noting the bulkers averaged 99,000 DWT in the third quarter, compared with an average of 125,000 DWT in the first half of 2018.

The containerships averaged 24,000 TEUs in the quarter, compared with an average of 88,000 TEUs in the first half of the year, it said.

Strong 3Q?

JPMorgan recommended caution on the stock, with earnings results due 7 November, after the market close.

It estimated third-quarter earnings could be strong as the orderbook was up 1 percent on-year at the end of the second quarter.

It also noted that Yangzijiang probably benefited from the Chinese yuan’s around 4 percent depreciation against the U.S. dollar in the quarter. It estimated that every 1 percent depreciation in the yuan against the dollar resulted in a 2 percent earnings per share increase as around 95 percent of Yangzijiang’s revenue is is in dollars, while 20-30 percent of the costs are in dollars, which are mainly for the engines.

JPMorgan said the stock appeared fairly valued, trading at 2.1 times 12-month forward order per share, compared with the historical mean of 2.0 times; it is also trading at 8.4 times 12-month forward price-to-earnings, compared with the historical mean of 7.3 times.

It kept its price target unchanged at S$1.40.


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