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Yangzijiang Shipbuilding Holdings Ltd’s Share Price Has Risen 27% in 2019: Is the Business Still Undervalued?

Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6) is a shipbuilding and offshore engineering company. From the beginning of 2019 to 4 April, Yangzijiang’s share price went up 27%, from S$1.25 to S$1.59.

In contrast, during the same period, the Straits Times Index (SGX: ^STI), of which Yangzijiang is a component, rose by only 8.5%. With such an astronomical increase in share price, stock market watchers might be wondering if the shipbuilder is still a bargain?

Before we answer that, let’s look at how Yangzijiang performed in its latest financial year.

2018 financial performance

For its fiscal year ended 31 December 2018, total revenue increased by 21% year on year to RMB 23.2 billion. All business segments grew for the year. Meanwhile, net profit grew 23% to RMB 3.6 billion. With the higher profit, the company declared an 11% increase in its dividend to S$0.05 per share.

Yangzijiang’s balance sheet is also robust with a net cash position. Its gross gearing stood at 13.7% at the end of 2018, down from 18.4% one year before.

Ren Yuanlin, Yangzijiang’s executive chairman, commented on the company’s prospects in the earnings release:

“The recovery on the shipbuilding market was accompanied with several uncertainties. Through several business cycles, Yangzijiang has grown into a resilient entity that consistently outperformed in unstable market conditions. The market recognises our strong capabilities in the building of containerships and dry bulkers, and our order book will continue to provide a stable revenue stream in the next few years.

We are also very pleased to set up the new joint venture with MES-SC and Mitsui. Our combined strengths in shipbuilding, technology and customer network will lay the foundation for a strong entity that caters to clients’ demand for high-tech, green vessels especially in the LNG carrier space. The JV will help us upgrade our product portfolio and bring our growth prospect to the next level.”

As of 31 December 2018, Yangzijiang boasted an outstanding order book of US$3.9 billion, which will be delivered from now till 2021.

Is Yangzijiang cheap?

To know if Yangzijiang is undervalued, we can compare the valuations of the company with that of the SPDR STI ETF (SGX: ES3), an exchange-traded fund that can be taken as a proxy for the Straits Times Index.Source: SGX StockFacts and SPDR STI ETF website (data as of 4 April 2019)

Yangzijiang is trading at a discount to the stock market in general when we compare the P/B and P/E ratios. However, dividend investors might prefer the STI ETF to Yangzijiang. We could see Yangzijiang’s share price increase further, and in turn trade at higher valuations, if the company keeps up its strong performance in 2019 and beyond.

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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.