Yangzijiang - US$2 b contract coming?

Yikes -- no chance to buy at 88. But buy for the big upside potential?

Amfraser's Lee Yue Jer, today:

Buy the strongest player in a weak industry: The entire shipbuilding industry is trading at depressed valuations, and in this climate we advocate buying into the strongest. The patient investor is being paid to wait with an inflation-beating dividend yield of 5.8%. The rerating will come eventually, and the risk-reward ratio is extremely appealing now. We continue to value YZJ at 8x 2012F EPS for a FV of $1.680. Maintain Buy.

When Cosco is over-ignored, it could present a trading buy opportunity. So my friend AKS, says:

4 Gd reasons to buy Cosco
1.) 200MA captured.
2.) High vol
3.) Nice candle.
4.) Cup and Handle breakout.

YZJ’s (at its 2Q12 results) announcement of order cancellations (of eight bulk vessels) adds another negative chapter to an already extremely tough business environment and cloudy outlook for Chinese yards.

While we have been negative on the sector for a while, we see the re-emergence of order cancellations as a likely catalyst for further de-rating given (i) backloaded payment terms, (ii) gearing, and (iii) falling asset prices, exposing yards to increased cash flow and operational risks. While valuations may seem cheap, we view this as less relevant given virtually no new order wins and a continued cloudy outlook.

Rongsheng, downgraded to UW, remains our key stock to avoid (given gearing, recent profit warning, likely lower subsidies and pure shipbuilding exposure). YZJ, downgraded to N,
is our preferred stock in an unloved sector (given its strong execution, net cash B/S and potential offshore expansion). COSCO also downgraded to UW.

Yangzijiang Shipbuilding (Holdings) has clinched its first offshore oil and gas order worth US$170 million (S$207 million), with an option for an identical order.

The construction contract was signed between Yangzijiang's 78 per cent owned Jiangsu Yangzijiang Offshore Engineering Co Ltd, and Explorer I Limited, which is wholly owned by Mena Offshore Investments Limited, Yangzijiang said on Monday.

Jiangsu will construct and deliver a Letourneau Super 116E Class design self-elevating mobile offshore jack-up drilling rig by the second quarter of 2015.

The rig will be capable of drilling to 30,000 feet depth and operate in 350 ft depth. It will be equipped with drilling equipment and systems with accommodation for 120 persons.

i like this Yangzijiang stock - good and cheap. Estimated PE only 6 to 7 times for FY2013. FY2012 net profit was S$720m (Rmb 3.6bn), even higher than SembCorp marine.

SembCorp Marine FY2012 net profit S$538m. Estimated PE is double at 15 times for FY2013.

Yangzijiang is one of the best companies in China's shipbuilding and marine industry. And we know that China is becoming the No 1 player in this industry overtaking Japan, Korea and Singapore.

Yangzijiang also pays decent dividends yearly of around 5-6% dividend yield.