Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6) is a shipbuilding and offshore engineering company based in China. Year-to-date, Yangzijiang’s share price has risen 20%, from $1.25 to S$1.50, as of 26 January 2019. The rise is a steep contrast to 2017, when its share price tumbled 15%.
Foolish investors who are interested in the company should not invest based on share price increases alone. They should analyse the company’s financial track record, its business prospects, and its valuation before investing in its shares. Let’s take a quick look at each aspect of the business here.
Financial track record and business prospects
From 2014 to 2018, Yangzijiang’s revenue increased by 10.9% yearly from RMB 15.35 billion to RMB 23.24 billion. However, net profit didn’t grow as much, inching up just 0.9% each year, from RMB 3.48 billion to RMB 3.61 billion.
In its most recent 2019 first-quarter, the company performed well. Yangzijiang’s revenue climbed 27% year-on-year to RMB 6.29 billion while net profit surged 38% to RMB 824.1 million. In terms of revenue growth, both its shipbuilding related segment and investment segment performed well.
Yangzijiang’s balance sheet stood strong as well; as of 31 March 2019, it had a net cash position of RMB 1.87 billion.
Going forward, Ren Yuanlin, Yangzijiang’s executive chairman, said the following in its latest earnings release:
“Yangzijiang’s strong financial performance has its roots in our drive for excellence and efficiency, in both our operations and the vessels we build. While the market has its ups and downs, our commitment to designing and delivering the best-quality and cost-effective vessels is constant. As a resilient entity that consistently outperformed in unstable market conditions, our next step is to elevate our product portfolio to include more high-tech, green vessels especially in the LNG carrier space, catering to the evolving, long-term demand in the market.”
As of 29 April 2019, Yangzijiang had an outstanding order book of US$3.5 billion for 101 vessels, providing a stable revenue stream for the next two years at least. All of the above point to a healthy business in Yangzijiang.
Is Yangzijiang undervalued?
Now, let’s turn to Yangzijiang’s valuation. The following table shows the price-to-earnings (PE) ratio, price-to-book (PB) ratio, dividend yield, and the share price of Yangzijiang as of 31 December each year from 2013 to 2018:Source: Yangzijiang Shipbuilding Holdings Ltd 2018 annual report
From 2013 to 2018, Yangzijiang traded at an average PE ratio of 7.7, an average PB ratio of 0.96, and an average dividend yield of 4.1%. At the closing price of S$1.50 on 26 January 2019, Yangzijiang was trading at a PE ratio of 8.0, PB ratio of 1.02 and a dividend yield of 3.3%. By comparing Yangzijiang’s historical valuations with that of the current ones, the company looks to be trading at fair value.
The China-based shipbuilder has a strong business as seen earlier. If investors believe that Yangzijiang can deliver the goods in the years to come then it could be worth paying fair value for the company’s shares.
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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.