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22-08-2011, 11:11 AM
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
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