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Hot stock: Yangzijiang gains 3% on Friday on strong Q2 performance; up 16% on the week

SHARES in mainboard-listed Yangzijiang Shipbuilding have been on a tear this week, due in part to its strong Q2 performance and being a beneficiary of a stronger US dollar as trade tensions fester. As at 3.03pm, the stock traded up S$0.03 or 3 per cent to S$1.02. Since Monday's opening, its shares have gained 16 per cent.

Yangzijiang was both the Singapore bourse's biggest gainer and most hotly traded stock on Wednesday, with 89.2 million shares changing hands, as shares closed S$0.08 or 8.8 per cent higher at S$0.99.

On Tuesday evening, the shipbuilder announced a net profit of 994.9 million yuan (S$198.8 million) for Q2, up 38 per cent from a year ago. Revenue more than doubled to 7.96 billion yuan from 3.79 billion yuan previously, mainly due to progressive construction and delivery of more larger-sized vessels in Q2, as well as shipping revenue contribution from its subsidiaries.

Analysts have been bullish on Yangzijiang, with CGS-CIMB maintaining its "add" call on the stock with a target price of S$1.29 on Wednesday, while OCBC investment research analyst Low Pei Han maintained a "buy" call with a fair value of S$1.23.

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On Friday, DBS equity research analysts hopped on the bandwagon, reiterating a "buy" call on the stock with a target price of S$1.82 as Yangzijiang "is a prime beneficiary of stronger US dollar and among the best proxies for shipping and shipbuilding recovery". 

DBS analyst Ho Pei Hwa said: "We have been more bullish on the sector’s recovery and believe Yangzijiang deserves to re-rate, catalysed by order wins and newbuild price increases eventually. The shipping demand growth could outstrip supply growth in 2018-2019. Profitability improvement of shipping companies should drive demand for newbuild vessels and higher newbuild prices."

Better returns from the the shipbuilder's investment segment and its decision to operate in the LNG/LPG (liquefied natural gas/liquefied petroleum gas) vessel segment with a Japanese partner strengthens the longer-term prospects of the company, she added.

Among key risks to this view are the hike in the cost of steel and the depreciation of the US dollar.

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