Yangzijiang Shipbuilding - Investment Spin-Off On Track
- Yangzijiang Shipbuilding (SGX:BS6)'s FY21 beat expectations on forex gains and good operational performance; declared S$0.05 final dividend, or 3.6% yield.
- A prime proxy to shipbuilding and shipping upcycles. After record-high order wins of US$7.4bn in FY21 (48% higher than US$5bn in the last boom in 2007), Yangzijiang Shipbuilding’s yards are full through 2024. While order momentum should slow down, it is expected to stay at an elevated level of ~US$2.5bn per annum. Earnings are set to grow at a 2-year CAGR of 13%, backed by a US$8.5bn record orderbook with gross margin improvement set towards 20% (from 11% in 2H21).
- Catalysts driving Yangzijiang's share price closer to our target price include:
- optimism on the macro economy and shipping market;
- sequential earnings growth, underpinned by revenue and margin expansion;
- a potential increase in the dividend payout; and
- an improving ESG score – comprising a potential spin-off of the investment arm and gaining traction in the dual fuel and LNG carrier markets.
- Investment spin-off timeline: SGX approval by mid-Mar and completion by early 3Q.
- The investment spin-off, Yangzijiang Financial Holding (Yangzi Financial), will be led by a separate board of directors to achieve strong governance, transparency, and independence. Upon successful listing, the group will present dividend-in-specie shares of investment listing to existing shareholders on a one-to-one basis. Management aims to deliver value to shareholders with an investment listing valuation above book over the medium term.
- Our target price for Yangzijiang Shipbuilding has been lifted to S$2.15 after rolling over valuation to FY2022, based on a sum-of-the-parts valuation (SOP), pegged to an 8x P/E on shipbuilding earnings, 0.7x P/BV for investments, and 1.0x P/BV for its marked-down bulk carrier/tanker fleets.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
Pei Hwa HO DBS Group Research | https://www.dbs.com/insightsdirect/ 2022-03-01 2022-03-01
Read also DBS Research's most recent report:
2022-03-29 Yangzijiang Shipbuilding - Financial Arms Boosts “E” And “G” Metrics
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