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.