Yangzijiang Shipbuilding shares ‘materially undervalued:’ UOB KH

A container ship. Photo by Ian Taylor on UnsplashA container ship. Photo by Ian Taylor on Unsplash

Shares of Yangzijiang Shipbuilding (Holdings), or YZJ, are “materially undervalued” at the current stock price, UOB Kay Hian said in a note Thursday.

Yangzijiang Shipbuilding is spinning off its investment management business Yangzijiang Financial Holding (YZJFH). Shareholders as of the book closure date will receive one YZJFH share for every Yangzijiang Shipbuilding share held.

“Since its IPO in 2007, YZJ has significantly grown and transformed its shipbuilding business, and in addition has the tailwind of high asset prices and charter rates that will benefit its shipping fleet,” the note said. “We believe that the current valuation for YZJ ex YZJFH does not recognise how the company has transformed its shipbuilding business in the past 15 years.”

UOB KH said the Yangzijiang Shipbuilding’s current share price, excluding YZJFH, implies a price-to-book ration of less than 0.5 times, while the brokerage estimated the shipbuilder’s book value, excluding YZJFH, at S$0.96 a share at end-2021.

YZJFH’s book value is at S$1.09, while the shipbuilder’s shares closed at S$1.56 on Wednesday. Subtracting YZJFH’s value from the share price leaves a remaining value of S$0.47, the brokerage said, calling it a “material undervaluation.”

UOB Kay Hian set a pro forma sum-of-the-parts (SOTP) valuation for Yangzijiang Shipbuilding ex-YZJFH at S$1.16.

The brokerage currently has a Buy call with S$1.95 target price on the share. Shares of Yangzijiang Shipbuilding were trading down 0.64 percent at S$1.55 at 3:14 p.m. SGT.

The spin-off company, YZJFH, will be listed on SGX on 28 April, in the afternoon session.