Hot stock: Yangzijiang hits 6-month high after capital injection into proposed spin-off

SHARES of Yangzijiang Shipbuilding BS6 hit a 6-month high on Monday (Mar 28), after the shipbuilder announced it had increased the share capital of Yangzijiang Financial Holding (YZJFH) - the investment unit it is proposing to spin off.

Yangzijiang's counter jumped as much as 5.5 per cent during early morning trade, up S$0.08 to reach S$1.54 as at 9.48 am. The last time the counter closed near this level was Sep 15, 2021.

It later closed 2.06 per cent or S$0.03 higher at S$1.49. The counter was also the second most traded by volume, with 55.8 million shares changing hands.

On Friday, Yangzijiang announced it increased the share capital of Yangzijiang Financial Holding, resulting in an estimated initial net tangible asset of about S$4.3 billion with about 4 billion shares.

All Yangzijiang Shipbuilding shareholders will be entitled to a dividend-in-specie on a one-to-one basis, the group added. This means Yangzijiang shareholders will receive 1 share for every Yangzijiang share they hold upon the former's successful listing.

Analysts believe Yangzijiang is on track for a potential re-rating following the successful spin-off of YZJFH, on the basis of improved earnings quality.

"The move will also attract investors seeking more direct exposure to the company's core shipbuilding business," said Citi analyst Jame Osman.

Citi has a target price of S$1.98 on the stock, implying a potential upside of about 32.9 per cent from the counter's Monday closing price.

DBS Group Research believes Yangzijiang is "set to rerate" closer to its target price of S$2.15, it said in a Sunday research note. This implies a potential upside of 68.5 per cent.

At this price, YZJFH is valued at 0.7 times its book value or S$0.77, while the remaining shipbuilding business is valued at S$1.38, DBS said.

The spin-off also assigns an "almost zero" residual value for the group's core shipbuilding business, Citi said.

Echoing the sentiment, DBS said Yangzijiang's current share price of S$1.46 only values the shipbuilding-related business at an "unwarrantedly low valuation" of around S$0.69 per share, assuming a fair value for YZJFH at S$0.77.

Both DBS and Citi reiterate "buy" on the stock.

In its Friday bourse filing, the group said YZJFH will leverage on its "longstanding track record" of investment management and debt investment business in China. It will diversify to special situations and to new asset classes including public markets, private debt, mezzanine financing, private equity.

The group has also identified new growth areas including fund and wealth management to build a recurring income model. Beyond China, it will expand its core markets globally and also explore investment opportunities in emerging markets in the Asia Pacific region.