Hot stock: Yangzijiang shares gain 6.5% after chairman returns to work

SHARES of Yangzijiang Shipbuilding are getting a boost from executive chairman Ren Yuanlin's return to office after a four-month leave of absence to assist the authorities in a confidential probe in Beijing.

At 3pm, China's largest non-state owned shipbuilder was trading seven Singapore cents or 6.5 per cent higher at S$1.14 on a volume of 57.7 million, making it the Singapore bourse's most active counter in an otherwise ho-hum session.

With Mr Ren's return, a major overhang on the shipbuilder's recent share performance has been lifted.

On Aug 1, a report by global shipping news service TradeWinds said that Liu Jianguo, who is chairman of Mr Ren's charity was being investigated for disciplinary violations by Beijing's anti-graft body. The report triggered panic selling by investors with Yangzijiang shares diving by as much as 20 per cent on Aug 8 before trading was halted. 

In August, analysts said the shipbuilder, whose stock shed 36 per cent in that month, was oversold and as such presented good value for investors. Yangzijiang only consistently traded above its net cash value of S$1 since mid-November.

Despite Monday's rally, the company's shares are still trading below S$1.30, the closing price before shares were first sold-off on Aug 8.

With Mr Ren back to heading Yangzijiang's operations, Chinese media have said the Central Commission for Discipline Inspection concluded its investigations on and have decided to arrest and prosecute Liu on suspicions of bribery.

DBS Group Research analyst Ho Pei Hwa said: "We believe that the chairman's return is a very positive development and may lead to a strong rebound in Yangzijiang's share price which has taken a hit despite the management's assurance that Ren's absence was not related to the company's shipyard business and has not affected its day-to-day operations."

Meanwhile, Citi Research analysts acknowledged that the bulk of Yangzijiang's US$700 million of new orders in the current fiscal year were secured while Mr Ren was away and his son, chief executive Ren Letian, was at the helm of the business.

OCBC Investment Research noted that Yangzijiang, which is "renowned for its steady execution and good cost control" has performed better than other Chinese shipbuilders during the recent downturn and stands as a beneficiary of consolidation in the global shipbuilding industry.

"The investment side of the business is also growing in stature, and we value this segment at a discount to listed Chinese banks," OCBC added.

On Monday, Citi maintained its "buy" recommendation and price target of S$1.50 for Yangzijiang, which remains its top pick among Singapore-listed yards. DBS has a "buy" call with a street high target price of S$1.68. OCBC has a "buy" rating with a fair value of S$1.39.