Thursday, July 21, 2011

Yang Zi Jiang

Yang Zi Jiang: UBS initiate Buy at TP $1.67. Note of impressively proactive in tackling the challenges faced by shipbuilders, recognizes that high margins from orders secured prior to the 2008 financial crisis will inevitably be squeezed, due to lower-margin incoming contracts.

Add that YZJ is executing plans to ensure net profits are maintained, and critically, the Co. emerges from the soft patch a stronger industry player. Quicker turnaround time lowers per-vessel costs, and allows the company to deliver more vessels per year, increase market share and help fend off cost headwinds. House think YZJ’s interest income is sustainable 2011-13E. Cash flow is healthy, interest rates have risen, and reinvestment opportunities exist on funds maturing this year.

Deutsche reiterate Buy at TP $2.30. Note that current valuations may prompt share buyback. Drop in share price excessive after it drop 27% on the weak drybulk market and investor concerns over the company’s financial asset investments.

At current valuations, YZJ is trading 24-36% below its P/E and P/B averages (since listing) and feel this share price drop is excessive. Think any further declines may prompt the group to buy back shares based on its actions in 2008. YZJ remains attractively valued versus other Chinese shipbuilders and has a good long-term execution track record.

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