DBS: Knee-jerk selloff in Yangzijiang shares appears overdone

An aerial view of Singapore’s portAn aerial view of Singapore’s port

The knee-jerk selloff of around 20 percent in Yangzijiang Shipbuilding’s shares on 8 August appears overdone, DBS said in a note Thursday.

The bank said the decline was on “swirling rumors” that Executive Chairman and controlling shareholder Ren Yuanlin was involved in an anti-corruption investigation in China.

On Wednesday, Yangzijiang said Ren Yuanlin had taken a leave of absence while he assists in a confidential investigation by certain Chinese governmental authorities. Yangzijiang said the company’s operations were unaffected and to the best of its knowledge, no other directors or executives appear to be subjects of the investigation.

DBS said the clarification from Yangzijiang would likely remain an overhang on the shares, possibly causing share price volatility “until the dust settles,” but the company’s statement should alleviate some concern.

“Day-to-day operations seem unaffected at this juncture. CEO Mr Ren Letian is capable to run the company given that he had been rotated to manage various divisions of the shipyard for nearly 10 years prior to his appointment as CEO in March 2015,” DBS said.

Considering the yards’ non-involvement in the investigations, and that operations and the fundamentals are intact, the selloff appears overdone, DBS said.

“Order win momentum, which was expected to pick up strongly over the next few months, would be crucial, serving as a confidence booster on the yard’s operations and ability to win new contracts,” the bank added.

It kept a Buy call with S$1.82 target price.

The shares ended Friday up 15.12 percent at S$0.99 after tumbling as low as S$0.93 on 8 August.

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