Brokers' take: CGS-CIMB raises Yangzijiang target price on listing of investment unit

CGS-CIMB has increased Yangzijiang Shipbuilding's target price to S$2.41 from its previous target of S$1.78, if its plans to list its investment arm spin-off Yangzijiang Financial Holdings come to fruition.

This presents a potential upside of 54.5 per cent from its last closing price of S$1.56.

The new target price is derived from a sum-of-the-parts valuation method, based on a price-to-earnings ratio of 9 times of the projected shipping profits for FY2023, assuming order momentum tapers relative to 2021, said analysts Lim Siew Khee and Izabella Tan in a report on Tuesday (Apr 5).

As for Yangzijiang Financial Holdings, the analysts estimate it to be valued at a price-to-earnings ratio of 8 times of its estimated profit in FY2023, which is lower than other larger fund management peers.

The Chinese shipbuilding company announced in December last year that it plans to spin off its investment segment in a listing on the Singapore Exchange mainboard.

If the spin-off and listing are successful, the plan is for BS6 shareholders to get shares of the spin-off group proportionally, through a dividend in specie.

Lim and Tan said that the investment company is expected to be listed by the end of April, with plans to deploy S$1 billion in its investment and fund/wealth management business.

The company plans to grow this part of the business, while paring down its debt investment business after the restructuring.

Yangzijiang Financial Holdings will focus on making strategic investments in the shipping industry, new economy sectors, student housing and data centres, as well as clean and new energy, noted the analysts.

As of Dec 31, 2021, its investment portfolio comprises 12 fund investments managed by 12 general partners in China, covering 23 projects with an aggregate invested amount of 4.6 billion yuan (S$980 million).

It is also currently undergoing negotiations with third parties on 6 fund management projects spanning private equity, fixed income and real estate, as well as private investment in public equity.

With the S$1 billion injection, Lim and Tan conservatively estimate that Yangzijiang Financial Holdings' total income will grow by 7 per cent from FY2023 to FY2024.

As it establishes a track record for growing its assets under management outside of China, its valuation could be rerated to 12 times the price-to-earnings ratio.

READ MORE:

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• Hot stock: Yangzijiang hits 6-month high after capital injection into proposed spin-off
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• Yangzijiang proposes spin-off and listing of investment unit to focus on asset management, direct investments