Excerpts from analyst's report
DBS Vickers analyst: Ho Pei Hwa (left)
» Appointment of new CEO, Mr. Ren Letian, is part of the Group’s succession plan
» Existing CEO, Mr. Ren Yuanlin will remain as Executive Chairman and continue to take the lead on strategic planning
» Yangzijiang clarifies that it is in an early evaluation stage on opportunity to acquire stake in RongSheng
» Maintain BUY and TP of S$1.62
Ren Letian, aged 33, will be the new CEO.Succession planning. Yangzijiang has appointed Mr. Ren Letian as the new CEO with effect from 1 May 2015, in an effort to improve its corporate governance in terms of separating the roles of Executive Chairman and CEO. More importantly, we believe this is part of the Group’s longer term succession plan as existing Executive Chairman and CEO Mr Ren Yuanlin is approaching his retirement age in two years time
Mr Ren Letian, the son of Mr. Ren Yuanlin, has demonstrated his caliber, having assumed several managerial roles at various levels and business divisions in the Group since 2006 prior to the current position as General Manger of the Group’s main yard - New Yangzi Shipyard.
We do not expect any major changes to operations and strategy as Mr Ren Yuanlin has been gradually handing down the day to day operations to his senior management team in recent years. He will remain as Executive Chairman and will continue to take the lead on strategic planning of the Group.
Ren Yuanlin, 61, (right, seen here with CFO Liu Hua) will relinquish his CEO role to his son but stay on as executive chairman of Yangzijiang. NextInsight file photo.Acquiring a stake in RongSheng? In response to an Upstream article that Yangzijiang is in advanced talks to take as much as a 20% stake in RongSheng, the Group clarified that it is evaluating the opportunity and has yet to firm up its decision.
We believe the likelihood for Yangzijiang to commit to an investment in the immediate term is low given RongSheng’s complicated operational issues and restructuring exercise as well as potentially slow shipbuilding orders this year. In the longer term, if the offer price is attractive and the restructuring plan is clearly mapped out, it may not be a bad idea to consolidate and eliminate the potential threat considering RongSheng’s strategic location within Yangzijiang’s close proximity.
In addition, RongSheng has one of the largest and most advanced shipyards in China, which would allow Yangzijiang to expand its capacity in the construction of sophisticated vessels.
One of our top picks in O&M. Yangzijiang is the best proxy to the shipping and shipbuilding recovery. Valuation is undemanding at 6x PE and 0.9x P/BV, with 4.5% yield and 16% ROE.