August ended on a weak note (-1.39% mom) after a stellar performance in July. Geopolitical risks in Iraq and Ukraine continued to be a drag, offsetting the strong set of 2Q14 results by US corporates. Closer to home, Singapore’s 2Q14 corporate reports ended with limited upside surprise as 55% of the companies under our coverage reported in-line results (1Q14: 51%). Only 14% of the results exceeded expectations (1Q14: 16%), one of the lowest since 2Q12.
Consensus-beating margins, strong EPS visibility into 2016E, breaking into 10K TEU containerships reinforce YZJ's fundamental outlook. While the stock has risen 23% (12M), we see further re-rating as YZ secures a firmer foothold in larger container vessels and achieves better margins from productivity gains. Ability to shorten the manufacturing cycle for its 10k TEU containerships will be key. It is also scaling up the value chain targeting complex LPG vessels. We raise 2014-16E EPS 21-50% on better than expected margins, one-off gains, and higher contribution from HTM assets. SOTP TP is raised from S$1.50 to S$1.60.
BUY with a target price of S$1.03 with protective stops placed at S$0.92. The stock has formed a low of S$0.93 and subsequently formed a bullish Harami pattern which has been followed by a potential bullish gravestone doji. Watch to see if there is a follow-through of the said pattern, and if so, the 14-day Stochastic indicator could move out of its oversold region and the MACD histogram could move above its centerline.