Whats up with this recent IPO? Heard from a friend who got 1 lot of this and he is sitting on a tidy profit from this. Why is it so hot?
Sailing to the top [EXTRACT]
Niche player on the cusp
Chinese shipbuilders are rising and gaining market share, and Yangzijiang
Shipbuilding (Holdings) Ltd. (YZJ) is leading the trend. New orders received in the
first four months of 2007 (4M07) have already hit 58% of the full 2006 figure,
compared with China’s 39% and South Korea’s 23%. We expect YZJ to continue
distancing itself from the crowd and deliver 63% sales CAGR and 53% earnings
CAGR in 2007-09.
Well defined strategy and solid execution
YZJ’s industry-leading gross margin of 21% in 2006 highlights management’s
strategy and execution. In addition to an expanding market share in containership,
the company recently secured 4% of the global share in Panamax bulker. We
believe YZJ is likely to explore more ways to strengthen its leadership position.
A dramatic industry slowdown and capacity glut would take their toll on all
players. We believe currency fluctuation and raw material prices are two
operational risks and gauge that a 1% change in the renminbi/US dollar exchange
rate and steel cost could swing the company’s earnings by 3.4% and 0.6%,
Valuation: initiate coverage with Buy 2; price target of S$2.35
We derive our price target of S$2.35 from a DCF method, assuming a WACC of
8.9% and terminal growth of 3%. Our price target implies an estimated 2008 PE of
30.1x and EV/EBITDA of 23.8x. We foresee 29% upside potential from the
current level and initiate coverage with a Buy 2 rating.