Deutsche Bank says 'sell' but other research houses say 'buy'. Yangzijiang stock shot up 9 cents to close at $1.03 yesterday. Excerpts from analysts' reports:
Ren Yuanlin, executive chairman, Yangzijiang, at a briefing for analysts on Wednesday. Photo by Sim Kih
Deutsche Bank (analyst: Kevin Chong): Target price 74 cents. While we recognize YZJ’s better execution track record versus some of its peers, we maintain Sell on its high valuations (vis-à-vis its growth rate) and weak industry prospects.
With a FY2010E PE of 7x and a 3-year EPS CAGR (compounded annual growth rate) of only 9%, YZJ’s PEG of 0.8x is not attractive.
We expect its 4-year EPS CAGR to decline by 10%. Our target price implies a FY2010E PER of 5.6x; even though it is below its historical average of 12.8x, it is justified as its high valuations in the past were driven by significant new order wins, which have now dried up due to the weak industry conditions.
Credit Suisse (analyst: Haider Ali): Revenue recognition for 1H09 was below our estimates, likely as a result of reschedulings of 18 vessels and a 5% rebate on eight high contracts, but overall YZJ's strategy of defending its order book and margins appears to be working.
We have pushed out revenue recognition schedule (rescheduling), increased gross margins to approximately 20% (1H09: 22.5%) and raised non-operating income (1H09 was 116% of FY09E), resulting in an 11-24% increase in our 2009-11E earnings. Target price is revised to S$1.29 from S$0.6 based on 2010E.
CLSA (analyst: Caroline Maes): As a result of our higher revenue and margin expectations, we are increasing our FY09 and FY10 EPS estimates by 22% and 46% respectively. This leads us to raise our target price from S$0.75 to S$1.00. We continue to value YZJ at 9x FY10, in-line with the global shipbuilding stocks. Maintain O-PF.
DBS Vickers (analysts: Ho Pei Hwa & Janice Chua): We roll over our valuation metrics toFY10 earnings, and use a higher PE multiple of 11x. This is in line with the average valuation of peers in Singapore, Hong Kong and Korea. It also implies a 20% premium over 9x PE used for Cosco Corp’s shipbuilding operations, which we believe is justifiable given Yangzijiang’s better earnings execution.
China Shipbuilding Industry Co (CSIC), one of the largest shipyards in China, has obtained approval from securities regulatory to list in the A-share market last week. A successful launch of CSIC at good valuation could drive up the values of Chinese shipbuilders, which now trade at an average 16.6x FY10 PE. This could result in a re-rating of Yangzijiang. Target price: $1.20.
Recent story: YANGZIJIANG: 2Q09 net earnings up 80% yoy at Rmb 607.4 million
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