Yangzijiang

Yangzijiang: CIMB maintains at O/p with $1.30 TP. House note that YZJ is cheap at 1.2x P/B, its trough during GFC. After a strong 1Q12, believe FY12 is likely to beat consensus expectations on margin strength. Securing jack-up rig orders could also be its game changer. House note that trough unwarranted, as the stock had outperformed the STI by 20% year to Apr before sliding in May following a resurgent EU debt crisis. Think that stock has been oversold, to 1.2x P/B (GFC valuations in Oct 08). With no news of order cancellations, foresee a rapid recovery in its share price if and when euro-zone concerns dissipate. YZJ beat house expectations in 1Q12 with shipbuilding gross margins of 27.2% against house 23.5% expectation for FY12. Believe progressive execution of its remaining 18 pre-GFC high-margin container-vessel orders from COSCO in FY12-13 could support margins. YZJ’s entry into rig building should be imminent as it prepares itself by developing the Taicang yard and hiring personnel to beef up its offshore division. Given its shipbuilding track record, believe its learning curve could be less painful than for other Chinese shipbuilding aspirants such as Cosco Corp and JES. Mgt is confident of securing 1-2 jack-up rig orders by end-2012.