YangZiJiang

YangZiJiang: Announced that it has increased its stake in Xinfu from 20% to 60% for US$57.2m. Xinfu is located at Taixing City, and its principle activities are shipbuilding, ship repairing, and production and processing of large scale steel structures. Acquisition will see grp’s shipbuilding capacity double by 2013.….

Xinfu owns a shipyard that is currently under construction. The initial plan for shipyard was for ship breaking and ship repairing as a supplementary business. In consideration of YZJ's plan to enhance its shipbuilding capacity, grp has decided to invest Rmb4b in Xinfu over 3 yrs to change it into a shipbuilding yard. This yard,once complete, would be ideal for building large vessels eg, Very large crude carriers (VLCCs), containerships etc…..

Yard is expected to start operations in early 2013 and once fully operational, should have an annual capacity of up to 3m DWT or the equivalent of 10 VLCCs or 12 10,000TEU containership vessels. YZJ's capacity as at Dec 2010 was 2.3m DWT per annum….

Move to expand capacity is positive in our view as YZJ's existing yards have a limit on the vessel sizes that they are able to build, and are both almost operating at full capacity for the next two yrs. Grp’s current orderbook stands at approximately US$5.1b, with this new capacity, YZJ should be able to accept sizeable new orders and scale up its construction capabilities….

At current price, grp trades at 11.1x FY11E P/E, which is compelling vs Cosco’s 18.6x. CS maintain OutPerform with $2.40 TP, calling grp one of the cheapest shipbuilding stocks globally and best positioned among Chinese yards to benefit from a recovery in containership orders, while DB maintans Buy with $2.30 TP. We note that street is generally bullish on stock, with 11 Buy Calls, 3 Hold Calls and 1 Sell Call, with a Mean TP of $2.33.