Yangzijiang Shipbuilding

Yangzijiang Shipbuilding > Hold

OCBC Investment Research, March 16

March 16 close: S$1.34

Fair value: S$1.34

THE shipbuilding industry has been undergoing tough times due to overcapacity, but the cruise ship segment remains a bright spot.

As early as end-2016, YZJ had expressed interest in the cruise ship segment, but management also noted then the complexity of building such vessels.

Meanwhile, as YZJ is not a state-owned yard, the likelihood of it securing defence related work is small.

Cognisant that the group cannot just rely on shipbuilding-related businesses to sustain earnings, YZJ's management started building an investment arm years ago, which in FY17 accounted for 32 per cent of gross profit. Meanwhile, the overall profitability of the group will be impacted by trends in the USD/RMB and steel costs. We fine-tune our estimates and our SOTP-based (sum of the parts) fair value estimate slips from S$1.49 to S$1.34.

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