Yangzijiang Shipbuilding (Holdings)

(Sept 11: $1.06)

UPGRADE TO NEUTRAL. Yangzijiang Shipbuilding (Holdings) (YZJ) has secured US$400 million of new orders in 3Q2019, an increase from US$200 million in 1H2019. With a surge in enquiries ahead of IMO 2020, we believe YZJ is on track to achieve our 2019 new order forecast of US$1.2 billion. According to TradeWinds, MSC has signed a letter of intent with YZJ for ten 12,000 TEU containerships, which could boost its order book by US$450 million if contracts for five vessels are firmed up this year. YZJ has purchased 22 million shares since Aug 13 at a range of 85 cents to 99 cents, for a total consideration of $20 million. This is likely to mitigate some of the overhang from leadership uncertainty as chairman Ren continues to assist in confidential investigations. We raise our price target to $1, now based on sum-of-the-parts, valuing the shipbuilding business at 7x PER, and a 50% haircut for its financial investments. Following a 34% decline in the past one month, we believe YZJ is trading close to trough valuation at 0.6x P/BV. — E