Tuesday 3 June 2014

Yangzijiang Shipbuilding

DBS Group Research, June 2
YANGZIJIANG's share price took a toll following headlines that Mr Ren is under investigation for misconduct relating to his personal investment in China-listed Tianjin Guoheng Railway Holding (Guoheng).
Yangzijiang has released an announcement to clarify that the allegations are against Mr Ren and not Yangzijiang. In addition, Mr Ren has reassured shareholders that the accusations are unfounded and he is taking necessary actions to set matters straight.
The selldown on Yangzijiang seems overdone. The allegations were against Mr Ren and have no impact on Yangzijiang's operations and financials. While sentiment may be hit, it is premature to jump to any conclusions especially with Mr Ren dismissing these allegations.
It appears that the motive behind the accusations seems ambiguous as Guoheng's board of directors has resisted Mr Ren's attempts to reconstitute the board and restructure Guoheng.
Lastly, based on interactions with Mr Ren over the past seven years, he has been forthcoming in his guidance and outlook on the company and industry during both good times and the downcycles.
In fact, he cautioned investors when the market was overheated during the 2007/2008 superboom.
Reiterate "buy"; target price unchanged at S$1.55. Valuation has fallen to an attractive six times FY2014 PE estimate and 1.0 times P/B following the knee-jerk reaction to the news last Friday, presenting buying opportunities for investors who remain positive on Yangzijiang's fundamentals.
BUY

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