Yangzijiang shares dive to a 13-month low (BT)

Plunge could be due to weak outlook for bulk carriers and eurozone debt crisis

By JOYCE HOOI

YANGZIJIANG Shipbuilding Holdings' stock price hit a 13-month low yesterday, losing 5.7 per cent - or 7.5 cents - in heavy trading and closing at $1.235.

Even as the ostensible reason for the sell-off remained the bleak outlook for the bulk carrier sector - which accounts for a large portion of Yangzijiang's revenue - analysts were hard-pressed to explain the depth of the stock price's plunge.

'The only reason I've heard is that the outlook is pretty weak for the bulk carriers. But this has been known for awhile. The share price correction has been more severe than anyone has expected,' said Jason Saw, an analyst with DMG & Partners Research.

The bulk carrier sector's woes have been well-documented over the last several months. In a report earlier this month, Jon Windham of Barclays Capital Research noted that new orders for dry bulk carriers for the first half of the year had fallen by 72 per cent year on year.

For the first half of 2011, the Baltic Dry Index had averaged 1,375, 41 per cent lower year on year.

For Yangzijiang, revenue from the multipurpose/mini bulker segment accounted for almost 65 per cent of its total revenue last year.

While traders quoted by Reuters said that the eurozone debt crisis could also be weighing on Yangzijiang's stock price because of its European customers, DMG's Mr Saw does not think that is the case.

'The whole eurozone thing shouldn't directly impact the stock that much. They have some Greek customers, but they take 20 per cent downpayment for their orders, with payments in five equal parts of 20 per cent each. I would suppose that it wouldn't be so negatively affected,' Mr Saw said.

'I don't think earnings will collapse in the near-term, so the share price should be supported by that.'

Mr Saw currently has a 'buy' rating on the stock with a target price of $1.98.

Another analyst with a local outfit was similarly baffled by the beating taking by Yangzijiang in the market, but suggested that there might have been concerns in the market about Yangzijiang's investments.

'Quite a significant portion of its earnings is from financial investments. So, maybe some people are wondering whether this can be sustainable,' the analyst said. Even then, he believed there was little cause for concern.

'According to management, they invest in held-to-maturity assets. In that sense, it's also backed by the bank, (so) it should be safer than pure equity investing.'

As at the end of last year, the group had 5.19 billion yuan (S$977.19 million) worth of held-to-maturity financial assets on its balance sheet, up from just 1.71 billion yuan in 2009.