Instead, Yangzijiang’s share price dipped by 1%. This was an underperformance of 17% against the straits times index and up to 39% vis-à-vis regional shipyards.
SEE:Yangzijiang wins new orders for nine vessels worth US$226 mil
“[The] market has over-penalised Yangzijiang for its debt investments, [without] realising that most investments are backed by collateral of 1.5-2.5x,” Ho says in a Dec 4 note.
The way she sees it, the shipbuilder’s rebalancing has brought a “golden opportunity” as it is now trading at below cash of $1.15/per share and an “unjustifiably low” 0.5x price to book value.
Looking ahead, Ho reckons the counter could have a 1.5% decline in earnings for every 1% depreciation in the US dollar if its net exposure of around 50% is not hedged.
She adds that a 1% increase in the cost of steel – which accounts for approximately 20% of its cost of goods sold – could potentially see a 0.8% drop in earnings..
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Even so, Ho has maintained her “buy” call and $1.40 target price on Yangzijiang. She believes this gives the counter a 54% upside from its 91 cent price on Dec 3.
Shares of Yangzijiang were flat at 91 cents as at 12.30pm on Dec 4.
