Brokers' take
Yangzijiang Shipbuilding (YZJ Shipbldg SGD) | Buy Target price: S$1.82 Oct 22 close: S$1.20 DBS Equity Research, Oct 22
The recent sell-off presents a buying opportunity. We believe Yangzijiang deserves to trade above its financial year 2018 forecasted book value per share of S$1.40 on the back of 10 per cent return on equity and 4 per cent yield. It is one of the most profitable shipyards in the world and among a handful with solid balance sheets, sitting on net cash (including held-to-maturity investments) of 91 Singapore cents per share and representing 77 per cent of its market cap.
Contract wins tend to be lumpy by nature. The slowdown in orders in Q3 2018 to around US$200 million (versus US$268 million in Q1 2018 and US$713 million in Q2 2018) based on our estimate taking a cue from Clarkson's data, should not be a cause for concern. It is neither a sign of an industry slowdown nor loss of Yangzijiang's market share. Historically, Yangzijiang tends to be more selective on order taking when its yards are close to full with a revenue coverage of more than two years. In addition, competitors might have been more aggressive in pricing given the strong US dollar.
Upcoming Q3 2018 results due on Nov 7 should be healthy. We expect Yangzijiang to report earnings of RMB700-800 million (S$139-159 million), stronger than usual of around RMB600 million a quarter, driven by deliveries of mega vessels and write-backs of RMB130-150 million.
Frasers Commercial Trust (FCOT) | Buy Target price: S$1.56 Oct 22 close: S$1.42 OCBC Investment Research, Oct 22
FCOT's Q4 FY18 results were within our expectations. On a full-year basis, distribution per unit came in at 9.6 Singapore cents, forming 100 per cent of our full-year forecast.
While 1H FY19 would see the final tranche of Hewlett-Packard's planned expiries at Alexandra Technopark, management has noted that leasing has gained momentum, and space can now be better marketed. Thus, we are optimistic that the manager should be able to backfill the current and planned vacancies well in 2H FY19.
Also, the various tailwinds we outlined previously remain intact. FCOT sits at a point in the cycle where Singapore commercial rents are projected to strengthen further, while ample debt headroom following the divestment of 55 Market Street should allow FCOT to continue growing its portfolio accretively.
We roll forward our valuations, taking also into account the drop in revenue and reduced financing costs arising from the 55 Market Street transaction.
Compiled by Lynette Tan
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
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