Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6) is the largest China-based company in the Singapore stock market. It is also a leading shipbuilder in China in terms of manufacturing capability and capacity.
Shares in the firm have taken a massive beating of late. Since its most-recent share price peak in November 2017, shares have fallen by around 48% to end at S$0.885 apiece yesterday. The precipitous plunge in the firm’s share price may cause investors to question: is there value in its shares?
To answer that, let’s look at Yangzijiang’s financial performance for the past 10 years. From FY2008 to FY2017 (Yangzijiang has a 31 December year-end), the company’s revenue has grown by 11.2% annually while its net profit has increased by 7.1% per year during the same period. A summary of its performance is shown from the charts below:Source: Yangzijiang Shipbuilding Holdings Ltd 2017 annual report
Upon closer inspection, however, we can see that Yangzijiang’s net profit had decreased from FY2014 to FY2016 despite revenue remaining relatively flat during the same period. To be sure, revenue and net profit had recovered by leaps and bounds in FY2017.
Now, let’s turn to Yangzijiang’s valuation. The following shows the price-to-earnings (PE) ratio, price-to-book (PB) ratio, dividend yield, and share price of the firm on 31 December each year from 2013 to 2017:Source: Yangzijiang Shipbuilding Holdings Ltd 2017 annual report
From FY2013 to FY2017, Yangzijiang had traded at between six and 10 times its annual earnings, with an average PB ratio of one and dividend yield of 4.2%.
At its closing price of S$0.885 yesterday, Yangzijiang was selling at a trailing PE ratio of 5.9, PB ratio of 0.6 and a dividend yield of 5.1%. In contrast, the SPDR STI ETF (SGX: ES3), an exchange-traded fund which can be taken as a proxy for the local stock market, had a PE ratio of 10.4, PB ratio of 1.1 and a dividend yield of 3.1% on the same day.
In an announcement at the end of May 2018, Yangzijiang said that it has started buying back its shares, “affirming confidence in the value of the company”. It added that the shipbuilding market sentiment continues to be positive, and that the company is confident in building up its order book at a healthy pace. As at 31 March 2018, the shipbuilder had an order book of US$4.5 billion, providing it a stable revenue stream for the next 2.5 years.
If Yangzijiang can increase its revenue and net profit in FY2018 and beyond on a consistent basis, I believe there could be value in Yangzijiang’s shares at its current stock price.
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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 doesn’t own shares in any companies mentioned.