Brokers’ take: UOBKH sees potential for higher dividends at Yangzijiang Shipbuilding

UOB Kay Hian (UOBKH) upgraded its recommendation on Yangzijiang Shipbuilding to “buy” from “hold” on the prospects of higher dividends, as well as news of a potential order win amounting to some US$400 million. 

Its target price on the stock remains unchanged at S$1.55 based on a price-to-earnings multiple of nine times to the brokerage’s 2023 earnings per share forecast – which is one standard deviation above the counter’s past five-year average of 6.7 times.

In a report on Tuesday (Jan 10), analyst Adrian Loh flagged the probability of a doubling of dividends, and the likelihood of a US$400 million new order win, as reasons for the upgrade.

“Yangzijiang’s stellar share price performance since the de-merger of its debt investments arm in April 2022 has led to recent profit-taking on the stock,” noted Loh.

The group may announce a higher-than-expected dividend upon the release of its annual results in end-February this year, he said, considering its current cash hoard as at end-June 2022, as well as limited funding needs post de-merger.

Citing industry sources, Loh was also positive on a potential order from Yangzijiang’s existing client Lepta Shipping. The purported contract value is estimated to amount to some US$400 million and would mark the group’s first order in 2023.

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“We believe that Yangzijiang has not publicly disclosed this order as it has yet to receive the first down payment for this order,” he added. 

While the analyst remained cognisant of the recent winding-up application filed against Yangzijiang’s dormant subsidiary earlier this month, he believes this development is a “non-event”. This comes as the reported level of provision amounts to less than 1 per cent of UOBKH’s estimated 2022 earnings, and is thus immaterial in his view.

Shares of Yangzijiang were unchanged at S$1.21 as at 1.08 pm on Tuesday.