• We highlight that current Yangzijiang's share price, excluding YZJFH, implies a P/B of less than 0.5x which in our view materially undervalues the company.
• Since its IPO in 2007, Yangzijiang Shipbuilding 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. Our pro forma SOTP-based valuation for Yangzijiang Shipbuilding ex-YZJFH is S$1.16.

What Does Yangzijiang’s Valuation Look Like Without the Investment Arm?

• Yangzijiang Shipbuilding (SGX:BS6)’s book value per share excluding Yangzijiang Financial Holding (YZJFH) would equate to S$0.96 per share as at end-21, comprising of:
  1. S$0.75 for the shipbuilding segment,
  2. S$0.09 for the shipping business, and
  3. S$0.12/share for the trading business.
• If we subtract YZJFH’s book value of S$1.09 from yesterday’s closing share price of S$1.56, the remaining value of S$0.47 implies a P/B of 0.49x which is a material undervaluation of the company in our view.

Comparing Then and Now

• We believe that the current valuation for Yangzijiang Shipbuilding ex YZJFH does not cycle, and we have forecasted for Yangzijiang’s shipbuilding margins to expand in 2022.

Update on the Spin-off of Yangzijiang Financial Holding

• Yangzijiang Financial Holding (YZJFH) have been spun out from Yangzijiang Shipbuilding via a distribution in specie wherein Yangzijiang Shipbuilding’s shareholders will receive one YZJFH share for every Yangzijiang Shipbuilding share they hold. This represents a dividend distribution of RMB20b, equating to S$4.26b or S$1.09/share, and was overwhelmingly approved by the company’s shareholders at its AGM on 18 Apr 22. As a result, YZJFH will be listed on 28 Apr 22 at 1pm, and shareholders as at the close of business on 22 Apr 22 will be entitled to this distribution in specie.
• Watching China’s escalating COVID-19 case numbers. According to the company’s management, the current COVID-19 movement restrictions have had some disruption on Yangzijiang Shipbuilding’s shipyard operations; however it believes that the financial impact is not material thus far.

Yangzijiang Shipbuilding - Earnings Forecast and Recommendation

• No earnings changes at present; however we highlight potential downside risk to earnings should China’s COVID-19 continue to be in a net cash position after the listing of YZJFH, thus arriving at a pro forma SOTP-based valuation of S$1.16/share for Yangzijiang Shipbuilding.

• Share price catalysts:
  • Evidence of margin expansion from 1H22 onwards.
  • New orders in higher margin segments, eg dual-fuel containerships or LPG tankers.

Source: UOB Kay Hian Research - 21 Apr 2022