DBS Group Research has kept its “buy” call with an unchanged target price of $2.88 on Yangzijiang Shipbuilding after the Mainboard-listed group said it stands a “reasonably good prospect of success” against arbitration proceedings levelled against three of its wholly-owned subsidiaries.
On Oct 12, Yangzijiang Shipbuilding announced that one of its customers had commenced arbitration proceedings on June 10, 2022, and Sept 26, 2022, pertaining to the cancellation of 10 shipbuilding contracts amounting to US$900 million ($1.18 billion) which were entered into in November and December 2021.
In the announcement, Yangzijiang stated that the claimants are seeking US$835 million, comprising the loss of bargain, loss of profits and refund of the payments made by the claimant.
The first tranche of arbitration hearings is scheduled in November 2024.
Based on current evaluations, DBS notes that the Group’s legal advisors believe that there are no merits in the claims and are highly unlikely to succeed as there are quantum of the claim is incorrectly measured and highly inflated.
According to DBS, Yangzijiang continues to have strong arguable defences and the orderings and cancellations had taken place during the Covid period in China when things might not have been normalised.
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Historically, DBS has seen cases where the group has worked with customers to help secure financing or alter vessel designs and models.
As such, DBS believes that the dips are a good buying opportunity.
“We continue to see upside catalysts stemming from good order flow, potential capacity increase and margin expansion”, DBS adds, noting that “it also offers [a] decent dividend yield of around 4%.”
Shares in Yangzijiang Shipbuilding closed 13 cents higher or 5.35% up at $2.56.
