SINGAPORE (June 11): OCBC Research is maintaining Yangzijiang Shipbuilding (YZJ) at “hold” with fair value estimate of $1.45.
OCBC says YZJ share price has seen some price correction due to recent softness amid a volatile market.
YZJ shares rose in April, only to come off in May following the recent imposition of additional tariffs by the US on Chinese goods.
And with the recent market correction, Yangzijiang has fallen some 18.2% from the peak in April of $1.65 to the recent low of $1.35 in May.
“However, this is higher than the 9.1% decline experienced by the STI for the same period,” says OCBC analyst Low Pei Han in a Tuesday report.
To recap, YZJ’s 1Q19 results ended March came within OCBC’s expectations, delivering a 27% y-o-y rise in revenue to RMB 6.3 billion ($1.2 billion) and a 38% increase in net profit to RMB 824 million.
Vessels delivered came to 15 in 1Q19, versus nine in 1Q18.
While the market for the bulker and containership segments remain quiet, YZJ management says the tanker market is relatively better, with enquiries for chemical tankers and crude oil tankers.
Low expects 2020 should be a much better year in terms of new orders, as shipowners who held back spending, are likely to place new orders once they get more clarity relating to IMO's (International Maritime Organization) sulphur content cap regulation which will be enforced from 2020.
“Under the new rule, ships will have to use marine fuels with a sulphur content of no more than 0.5% sulphur against the current limit of 3.5%,” says Low.
However, management believes that risks relating to global economic growth and trade war tensions still exist and could also weigh on the pace of new orders.
As at end April, YZJ had an outstanding order book of US$3.5 billion ($4.8 billion) for 101 vessels, which will keep its yard facilities at a healthy utilisation rate up to 2021.
As at 12.50pm, shares in YZJ are up 3 cents at $1.43 or 8.7 times FY20F earnings.
