Brokers' call: Yangzijiang Shipbuilding

Yangzijiang Shipbuilding

Broker: DBS Group Research

Call: Buy

Target price: $1.25

Yangzijiang has been awarded new-build contracts for Very Large Ore Carrier (VLOC) worth US$510 million (S$692 million) by China's ICBC Leasing, scheduled for delivery from 2018 to 2019.

The orders are part of the 30 VLOC orders placed by major Chinese ship owners, including ICBC Leasing, following the signing of the contract of affreightment with mining group Vale to transport iron from Brazil to China over a period of up to 27 years.

This is Yangzijiang's first contract win this year with which its orderbook should hold up at around US$5.4 billion as of April 2016.

These will be the largest dry bulk carriers Yangzijiang will be building, lifting its product profile to a new level. Being the only private yard that received this batch of VLOC orders for Vale, it is a testament to the firm's strong reputation, shipbuilding capabilities, technological expertise, delivery record and financial position.

While the outlook for shipping and shipbuilding remains uninspiring, Yangzijiang is poised to emerge stronger in this downturn.


Innovalues

Broker: Maybank Kim Eng

Call: Buy

Target price: $1

Innovalues announced that it had appointed Rippledot Capital Advisers to "review the strategic options available… with a view to enhancing and unlocking shareholder value". This announcement may have been made in response to the stock's earlier spike above its previous peak. As such, it is likely the process is already quite advanced, and it may have been holding discussions with potential buyers for some time now.

The process could be close to concluding. Whether or not there will be an offer cannot be predicted. But two recent mergers and acquisitions (M&A) in the Asian automotive space - IPE in Hong Kong and Interplex in Singapore - have highlighted Innovalues as a leading M&A candidate.

Innovalues' financial and operating metrics are far better than those of the other two companies. Baring Private Equity, which is privatising Interplex, could potentially bid for Innovalues.


Sheng Siong Group

Broker: CIMB

Call: Buy

Target price: 95 cents

Sheng Siong just announced the acquisition of a property for $53 million at approximately $1,732 per square foot in Bedok Town Centre, which is an existing store that the company has been operating for almost 10 years.

The store likely enjoys higher footfall from being attractively located beside Bedok Mall, the interchange and train station. The revenue contribution from this store is estimated to be 5 to 10 per cent and hence the acquisition, with the company not wanting to risk losing an important store.

Including its Junction 9 store, due to open in the second quarter of 2016, Sheng Siong will now own four out of the 41 stores that the group operates.

The new purchase does little to dent the group's balance sheet with net cash of $126 million as at end financial year 2015. Excluding final dividend and this property purchase, the group will still have net cash of $47 million.

A version of this article appeared in the print edition of The Straits Times on April 18, 2016, with the headline 'Brokers' call: Yangzijiang Shipbuilding'. Print Edition | Subscribe