Yangzijiang Shipbuilding (Holdings)

About 9 months back, YZJ order book was at a very low level and new shipbuilding orders was at lowest for about or close to 30 years! YZJ was telling shareholders/investors in their announcement and AR for maybe about a year.

Wasn't that the best time to bet on cyclical co. if you include valuation? Not hard to believe good time will be back, but well not many make the purchases a year ago or even 6 month back

I am glad I took the decision to transfer half of money in one of my core stock to YZJ last year based on its extremely low pb. On hindsight it was a correct decision. But only time will tell. YZJ is a highly cyclical stock and its stock price moves in extremes direction. Not really a good stock to buy and hold long term. Just my opinion.

The most recent data suggest buying came mostly from institutions. Retail investors are selling just when things are looking up. Which brings about the conviction part of the investment equation. A sound investment decision can be wrong for most of the time but will eventually be proven right given the right condition(s)/time frame.

And a speculative no logic investment decision can be very right for a long time and can make many very rich if they get the timing right. But it is impossible to get consistent returns as there is no sane basis for valuing it.

YZJ is a well managed company operating in a highly cyclical sector. And there is no AI enabled ship building start-up that is able to disrupt it as far as I know.

History suggests that labour intensive manufacturing activities will eventually shift to another country of lower cost or higher productivity. But I cannot imagine another country replacing the manufacturing capacity and productivity of China.

YZJ@1.38
Yangzijiang seals another USD715 million worth of new orders for 14 vessels.
https://links.sgx.com/FileOpen/YZJ%20Pre...eID=672144



Stay home and stay safe, everyone.

Interesting point from 1H21 results:

https://links.sgx.com/1.0.0/corporate-an..._final.pdf

...

The numerous milestones achieved by Yangzijiang was due to a combination of favourable market conditions and the Group’s continuous efforts to ensure sustainable growth and build competitive advantages in its core shipbuilding business. In view of the Board’s commitment to continuously improve corporate governance and focus on developing its strengths in shipbuilding, the Group is in the preliminarily phase of conducting a strategic review of its debt investment portfolio to allow the Group to focus solely on the expansion of its core shipbuilding business. As Yangzijiang aspires to become one of the best shipbuilders in the world, we remain committed to ensuring long-term value creation for all stakeholders and will act in the best interest of our shareholders.

...

So there could push factors to minimize or get out of debt investments.

1. Deteriorating asset quality/ increasing bad debt ratio.
2. Potential upcoming legislation.
3. Ship building is on a tear right now that there is a need to be have 100% focus. Cant have distractions. Need to clear the side shows. (Non core businesses.)

(05-08-2021, 10:29 PM)smallcaps Wrote: Interesting point from 1H21 results:

https://links.sgx.com/1.0.0/corporate-an..._final.pdf

...

The numerous milestones achieved by Yangzijiang was due to a combination of favourable market conditions and the Group’s continuous efforts to ensure sustainable growth and build competitive advantages in its core shipbuilding business. In view of the Board’s commitment to continuously improve corporate governance and focus on developing its strengths in shipbuilding, the Group is in the preliminarily phase of conducting a strategic review of its debt investment portfolio to allow the Group to focus solely on the expansion of its core shipbuilding business. As Yangzijiang aspires to become one of the best shipbuilders in the world, we remain committed to ensuring long-term value creation for all stakeholders and will act in the best interest of our shareholders.

..

Based on the 1H results, I interpret them to show that:

1. Nearly half of the net assets were held in debt instruments, after allowing for provisions
2. More than half of the 1H net income came from the yield on those debt instruments.

So, was it what it says in the title, a shipbuilding business, or a finance company with a shipbuilding subsidiary?

The latest announcement from last Friday shows that the amortized cost of debt instruments, excluding provisions, has reduced from 18.5 bn RMB on 30th June 2021 to 12.5 bn RMB, with 26% of that related to the real estate business, but none to Evergrande.

https://links.sgx.com/FileOpen/Clarifica...eID=684521

There was about 1.835 bn RMB in provisions on these debt instruments in the 1H 2021 accounts, down from 2bn in 1H 2020. 

While it is good that management had already recognised the need to get back to concentrating on shipbuilding, this side of their business is still significant and I wonder if they are going to have to take some further big provisions in the current environment, particularly on the real estate related debt instruments.

The recent announcements for the spin off for the Investment segment has made this a really interesting investment to look at. The article below attempts to discuss what might happen next and how value can be unlocked through this corporate action.

https://www.thesquirrelsdrey.com/post/ya...-potential

I took a quick look at their 2020 annual report and I have some concerns.
Firstly their debt investments are all in RMB. It means likely their portfolio is exposed to China property sector. They will be significantly hit this year? Their year-end is coming and I wonder is the announcement done with the year-end audit in mind?

From their 2020 annual report page 106, I noted there is major jump in their loss allowance provision on their debt investment, although as % of portfolio it is still small. Maybe 2021 will be another major increase in provision?

"Management has determined the expected loss rates by grouping the borrowers according to internal
risk management grading. A loss allowance of RMB539,549,000 (2019: RMB128,118,000) for debt
investments at amortised cost was recognised during financial year."