Yangzijiang Shipbuilding - Planting a seed in Highlander

 Taking a 3% effective stake in Shenzhen-listed system supplier Highlander

 Strengthening the bond; alternative source of income

 Potential move into military vessels?

 Reiterate BUY; TP S$1.62 implies 14% upside potential plus 4% dividend yield

Shareholder of Highlander
Yangzijiang announced that it is investing Rmb130m (approx S$28m) for a 23.6% stake in a JV, Shanghai Laurel Ocean Systems Limited (“LOSL”). LOSL envisages to become a top service provider of professional marine databases in China.

Following the establishment of LOSL, Shenzhen-listed Beijing Highlander Digital Tech Co. Ltd (“Highlander”) will acquire 100% of LOSL through a private placement of 28.7056m new shares representing a 12% stake in Highlander (Yangzijiang’s effective stake : 2.8%). The share placement price of Rmb19.16 represents a steep 49% discount to Highlander’s last closing price on 19th Jun.

Great oaks from little acorns grow
Founded in February 2001, Highlander specializes in the marine intelligence and ocean information technology industry and has been a supplier to Yangzijiang. The deal could strengthen the bond between these two groups and provide alternative source of income from the relevant industry to Yangzijiang. The share swap will also make LOSL the second largest shareholder, after founder & Chairman Mr Wan Qiu Shen’s c.16% stake. We wildly speculate that the relatively small investment could in the longer run, pave Yangzijiang’s way into the military vessel space, tapping on Highlander’s 10 years of network and experience in this area.

Technical Analysis
Daily Chart
Potential dual-listing could drive re-rating; decent dividend yield
While the stock has done well, we see potential re-rating from probable dual-listing in Hong Kong to fund M&A activities. In addition, Yangzijiang offers decent dividend yield of 4% or 5.5 Scts per share on the back of stable earnings and cash flow. (Read Report)

Source : DBS Group Research

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