Yangzijiang Shipbuilding Holdings Ltd’s Share Price Has Doubled Over the Past Year: Is the Business Still Cheap?

Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6) is a shipbuilding and offshore engineering firm. It has seen its share price double from $0.74 on 18 October last year to S$1.52 on 17 October 2017. To be exact, its shares have surged 105% in price.

In comparison, during the same time frame, the Straits Times Index (SGX: ^STI) has only gone up by 18%.

With such an astronomical increase in share price, is the shipbuilder still a bargain?

To help answer that question, we can compare the valuations of Yangzijiang Shipbuilding Holdings to the valuations of the STI ETF (SGX: ES3), an exchange-traded fund which can be taken as a proxy for the STI.

Yangzijiang is trading at a premium to the market when we compare the PE ratio and the dividend yield. In fact, the shipping firm’s average PE ratio from 2008 to 2016 was 7.4. The current PE ratio of 12.6 is almost 70% higher than the average.

For the second quarter of 2017, Yangzijiang’s revenue grew 27% year-on-year to RMB3.8 billion, due to improvements in its shipbuilding related segment and investment segment.

Meanwhile, its net profit surged 73% to RMB719.9 million, despite headwinds in the sector it is operating in.

The firm explained the reasons for its robust performance during the quarter:

“Yangzijiang’s steady performance in a volatile market is attributable to its persistent efforts in building up core capabilities in shipbuilding, its achievements in innovation and introducing new vessel products, and its established management structure and use of technology that constantly improve its operational efficiency.”

We could see the firm’s share price increase further, and in turn trade at higher valuations, if the third quarter financial results exceed market expectations.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P owns units in STI ETF.