• Disposing certain assets
• Revise forex assumptions
• Lower FV to S$0.81

Disposes stake in associate company

Yangzijiang Shipbuilding (YZJ) announced on Tuesday that it has disposed its entire 20% interest in Jiangsu Hailan Marine Systems Technology, which deals with integrated marine electrical systems. The total consideration for this is RMB29.5m while NAV of the assets to be disposed of is just 0.13% of YZJ’s total NAV.

Sells interest in PPL Shipyard

PPL Holdings Pte Ltd (a JV company in which YZJ holds 45% effective equity interest) and EInterface Holdings (wholly owned subsidiary of PPL Holdings), also recently sold their 15% interest in PPL Shipyard Pte Ltd to Sembcorp Marine, which owns the balance 85% of PPL Shipyard. As the aggregate consideration for the disposal is US$115m (~S$155m), the consideration attributable to YZJ is US$51.8m (~S$70m). YZJ intends to use the net proceeds as part of its working capital.

Disposal of real estate assets

Recall that the group also announced on 22 Jul that it had disposed its real estate development assets (50% equity interest in Jiangsu Huaxi Yangzi Real Estate Co, JHYRE) for RMB8.1m. JHYRE is involved in land development for the purpose of developing high end residential buildings on the group’s former shipyard land in Jiangyin city that was vacated during relocation. After this disposal, YZJ has no business exposure in the real estate sector.

Streamlining its assets

As seen by the recent moves, the group is streamlining its business. Management had previously mentioned its desire to leave the real estate business after its earlier foray into this area, and it is also no surprise that the group is giving up on rig building for now, given the poor industry outlook and the fact that its only newbuild jack-up rig is still idle in the Taicang yard after repeated delivery deferrals.

Ever since our rating downgrade on 8 Aug, YZJ’s share price has lost about 11.4% of its value vs. the STI’s 2.3% rise. We update our RMB/SGD assumptions and our fair value estimate correspondingly drops from S$0.87 to S$0.81. Maintain HOLD.  

Source: OCBC Research - 8 Sept 2016