Yangzijiang Shipbuilding (Holdings)

(19-07-2011, 03:02 PM)karlmarx Wrote: such announcements are indeed few, and far in between. yzj's management appears overly concerned with defending their falling share price, to the extent of 'threatening' shortists with share buybacks. wilmar was probably the last time a blue chip was heavily shorted, about 7 months back. wilmar's share price was stabalised only after insiders themselves started buying from the open market, and without alluding to any share buyback programme. if yzj's management wanted to prove the point that their share is deeply undervalued, why don't they put their money where their mouth is?

YZJ Executive Chairman purchased 500,000 shares @ $1.27 today. Share price closed at $1.325.

(Not Vested)

I did a day trade at 1.265 this morning and sold it minutes before exchange close.
Kind of think of it I am stupid enough not to buy more.

No longer Vested

(19-07-2011, 06:51 PM)Nick Wrote: YZJ Executive Chairman purchased 500,000 shares @ $1.27 today. Share price closed at $1.325.

(Not Vested)

i believe that is the reason -- especially for those that got wind of the news before it was announced -- for the price jumping so much towards closing. his purchase from open market had more impact than his announcement.

yzj was not the only stock to suffer from a sell-down in the past weeks, most marine-related stocks were heavily sold down too. yzj bore the heaviest brunt of the sell-down, perhaps because of a lack of confidence in future orders for new builds. after all, charter rates for both container bulkers have barely recovered. only the ship owners with long-term charters sealed years ago are turning a profit. it doesn't make sense for ship owners to increase capacity when the charter market is so competitive. perhaps yzj foresaw these challenges, and wishes to diversify itself into a conglomerate in the near future.

The price of yzj is falling again.. is it time to accumulate for the long term based on its fundamentals? Any comments?

The main risk with YZJ will be the quality of the order-book going forward. Most of the high margin pre crisis contracts will be completed by next year. The contracts secured over the past couple of years wouldn't be as profitable since vessel prices are much lower. Similarly, with the over-supply of vessels, it is unlikely it can continue to benefit from the new orders as well. YZJ is countering this by using volume (building large number of mega ships) to offset margin and venturing into new business streams like financing, scrapping and possibly real estate. Would appreciate forumer's views !

(Not Vested)

YZJ share price has taken a massive beating over the past quarter. It recently closed at 97 cents - a level not seen for a long time. Over the past 1 month, YZJ directors have purchased 1.7 million shares though there hasn't been any share buy-backs yet. It must be noted that in 2H 2008, YZJ used their substantial cash pile to repurchase 228 million shares from open market. Their 1H 2011 results was decent but it will be interesting to see how their plans to tackle the declining margin of new contracts, growing its Marine division into the O&G sector, building its financing division and potential diversification into real estate will pan out.

(Not Vested)

I had looked through the financial results of YZJ for the past 5 years. I must say quantitatively, its had been impressive (in fact one of the most impressive I've seen so far).

5 year: Equity, Sales, income, OCF and FCF: increasing steadily (all of them have 5 year CAGR of >50%)
1 year: Equity, Sales, income, OCF and FCF: still doing very well (growth of between 15-60%++)

ROE had been relatively stable but high the past 5 years, mostly between 20%-30%.
ROE currently about 30% (This compares with say, Cosco, of around 20%)
LT-Debt is very low at about 4%, which meant ROIC is about the same as ROE.

P/E is pretty low at <$7.
NBV though, is around 0.5 compared with the market price of around 1 now.
Dividends paid since is not very high, but still respectable.

My impression of YZJ's management is pretty good. They took good advantage of the crisis in 2008 and bought over smaller shipyards as a means of expansion. The management took steps to diversify in view of the higher over-supply of vessels. I do agree though, that the main risks lies with the declining margin of newer contracts and it looking into other sectors for diversification.

My estimated intrinsic value tells me YZJ is now undervalued. I am already vested but would really get excited if it does goes down to $0.85. The directors have been buying recently at a price of between about $1 to $1.1. I intend to hold YZJ for the long term, say 4-10 years.

(Vested)

http://info.sgx.com/webcoranncatth.nsf/V...2003EE293/$file/CorporateClarifications.pdf?openelement - YZJ issued more corporate updates in light of the declining share price to further clarify their investments and plans for growth (especially with declining margins in new orders). YZJ director purchased another 0.5 mil shares.

(Not Vested)

Risk associated with Yangzijiang:

1. Margin erosion. The past 5 years of high margin is directly related to the peak container ship price in 2007 - 2008. Even the management is preparing for lower margin in the future by lifting the capacity to counter the margin erosion.

2. Execution risk. The Seaspan 10,000 TEU container ship will be the first mega container ship for Yangzijiang. So far even the shipyard is not ready yet (Xinfu Shipyard). Plus, the margin is really thin for the 10,000 TEU ship although the management mentioned they priced it higher than Korean yard, but I doubt so. As for offshore & marine, so far from the experience of Cosco, there is still long way for Yangzijiang to succeed in O & M.

3 Risk of financial assets. 1) counter party risk. 2) collateral risk. I guess that quite substantial part of the financial assets are related to property (construction/property development/investment). property related industry is definitely not the favorite industry in China.

Although Yangzijiang may be the best private shipyard in China (in term of execution), the future of shipbuilding industry simply does not look good. is it worth the risk to initiate a position on it? I don't think so. There are other companies cheap but with less risk and brighter future. Of course, if you already opened positions and intend to hold having faith that it will be a success, just hold on.


just my 2 cents

The Straits Times
Aug 23, 2011
Shipbuilder takes steps to keep profits growing
Yangzijiang outlines measures in SGX filing to boost investor confidence

By Jonathan Kwok

YANGZIJIANG Shipbuilding eventually expects difficulties maintaining its gross profit margin above 20 per cent but has undertaken steps to ensure that earnings do not take a hit.

These include increasing its shipbuilding capacity, developing capabilities in offshore marine, and building larger and technologically advanced vessels that can command better margins.

The China-based shipbuilder outlined the approach yesterday in a statement to the Singapore Exchange (SGX).

Yangzijiang said it was able to keep gross profit margins from shipbuilding above 20 per cent in the first half, thanks to orders it secured before the financial crisis when margins were higher.

'More than 50 per cent of the group's existing order book of approximately US$5.52 billion (S$6.7 billion) belonged to orders secured pre-financial crisis,' said the filing to the SGX.

'Continuous execution of these orders ensures positive growth in both margins and earnings throughout 2012 and even 2013.'

But due to the lower margins for newbuilds, Yangzijiang considers it 'challenging' to secure new orders at gross profit margins above 20 per cent.

This has forced it to embark on strategies to ensure that earnings will continue to grow after 2013, despite lower margins.

Yangzijiang also expressed confidence that it will continue to rope in new orders amid the challenging environment, citing the industry's demand for newer, bigger and more fuel-efficient container vessels to replace older ones.

The firm added that it receives 'strong financial support' from Chinese banks and has cash balances of about 7.2 billion yuan (S$1.36 billion) as of June 30, meaning it can complete the construction of vessels.

Yangzijiang reiterated that it has no immediate plans to issue convertible bonds and highlighted its 'conservative approach' in investing in fixed rate instruments offered by banks and trust companies.

Any proposed investment that exceeds 100 million yuan will have to be approved by Yangzijiang's board of directors.

The firm's attempt to shore up investor confidence comes amid a sharp slide in its share price in recent months.

After the announcement yesterday morning, Yangzijiang shares gained four cents to $1.01, but that is still down 47 per cent since the start of the year.

The counter's close last Friday of 97 cents was the lowest closing price since November 2009.

Yangzijiang also disclosed yesterday that executive chairman Ren Yuanlin bought 500,000 shares from the open market last Friday.

Together with director Yu Kebing, Mr Ren has recently been actively snapping up Yangzijiang stocks amid the sharp price falls.

jonkwok@sph.com.sg