Hot stock: Yangzijiang climbs nearly 5% on surge in Q3 earnings

Shares of Yangzijiang Shipbuilding (Holdings) jumped early Friday after the Chinese shipbuilder reported a 208 per cent surge in its third-quarter earnings.

The stock rose 7 Singapore cents, or 4.5 per cent, to S$1.635 by 9.38am. Some 15.8 million shares had changed hands by then, making it the second- most heavily traded stock on the Singapore Exchange.

Yangzijiang on Thursday evening reported net profit of 866 million yuan (S$177.5 million) for the three months ended Sept 30 - a 208 per cent growth from the year-ago profit of 281.2 million yuan.

Revenue rose 13 per cent to 4.38 billion yuan.

The jump in earnings was partly aided by its share in results of associated companies - compared with a loss in the year-ago period - and a lower effective tax rate, OCBC analyst Low Pei Han noted.

Stripping out these one-off items, results were "within expectations", she said in a note on Friday morning.

"Looking ahead, market conditions for the shipbuilding industry have continued to improve with the Baltic Dry Index recovering to a three-year high, though it will still take time for the overcapacity in the shipping industry to be resolved," she added.

Ms Low is maintaining her "hold" rating on the stock, but putting her target price of S$1.48 under review pending more details at a briefing on Friday.

Nomura analyst Patrick Xu, however, has a more bearish take. He expects the group's shipbuilding revenue to decline in the fourth quarter, given a 2 per cent year-on-year drop in the order book as at the end of the third quarter.

"Given the recent strong share price performance, we think it is an opportune time to sell the stock before the earnings deterioration becomes more obvious," he said in a note. The stock is now very expensive at 18 times forward price-earnings, which is three standard deviations above the historical average of eight times, he added.

Mr Xu has a "reduce" call on the stock, with a target price of S$1.04.

Executive chairman Ren Yuanlin noted in the exchange filing that the shipbuilding market has continued to recover, especially in the dry bulk carrier segment.

"We have achieved our new order taking target for 2017 ahead of schedule, and we'll continue to ride the wave and build up our order book. The strong outstanding order book has given Yangzijiang the resilience to consistently deliver profit throughout market cycles," he said.