Yangzijiang

Yangzijiang: CLSA reinitiating coverage on Yangzijiang with an O/P rating and $1.34 target price which implies 14% upside. Both dry bulk and containership segments have shown signs of bottoming out with strong order flow coupled with improvement in pricing. YTD 203 containerships (1653k TEUSs) and 318 bulkers (54m DWT) have been ordered. While initially the ordering activity was driven primarily by rock bottom prices both bulkers and large containership prices have recovered between 5-10%. Further, orderbook/fleet ratio is now back to 06-07 levels. Combination of revival in shipbuilding orders and pricing coupled with order concentration among the top yards will drive market share gains for Yangzijiang which in turn will support order growth. Finance business also continues to generate healthy returns and strong risk control measures imply risk of write downs is low. Stock is trading at 10x FY14 PER and 1.2x PB which is close to mid-cycle valuations but well supported by 13% ROE.