Yangzijiang Shipbuilding (Holdings)

[CityFarmer]

http://infopub.sgx.com/FileOpen/Announce...eID=276405

Results is out:

1) Dividend maintain at 5 cents

2) Confirmation of rig orders, but have not receive deposit, hence view contract as non-effective. Well, I accept that.

Qn:

On page 11,

The HTM register a cost of 255707000, the first of such cost incurred. What is this? anyone knows? Default of payment??

Yes, that was one of the key costs that drag down net profit. The other one is the impairment provision in shipbuilding segment.

Base on the report, the explanation was

"In 4Q2013, total cost of RMB256 million was incurred for the Group’s Held-to-Maturity Investments, which were due to tax expenses mainly consisting of sale taxes and its related levies on interest income." - page 12

The impairment provision remains stable for HTM, base on the statement below.

"As at 31 December 2013, impairment provision for
HTM investments of RMB634.6 million remained stable as compared to end of last year." - page 13

I didn't aware that there was such a heavy sale taxes and levies? A new measure to curb "shadow banking"? One time or recurrence? Time to do more research...

(vested)

[Greenrookie]

http://infopub.sgx.com/FileOpen/Announce...eID=276405

Results is out:

1) Dividend maintain at 5 cents

2) Confirmation of rig orders, but have not receive deposit, hence view contract as non-effective. Well, I accept that.

Qn:

On page 11,

The HTM register a cost of 255707000, the first of such cost incurred. What is this? anyone knows? Default of payment??

Your eye very sharp :

Page 12 :
In 4Q2013, total cost of RMB256 million was incurred for the Group’s Held-to-Maturity Investments, which were due to tax expenses mainly consisting of sale taxes and its related levies on interest income.

Thanks Ken,

My eyes twitching non-stop. That's why I missed page 12. Hmm... But they never incurred such costs before. I wonder if it is recurring? It did not incurred such costs in 2012 FY.

[Ken123456]

http://infopub.sgx.com/FileOpen/Announce...eID=276405

Results is out:

1) Dividend maintain at 5 cents

2) Confirmation of rig orders, but have not receive deposit, hence view contract as non-effective. Well, I accept that.

Qn:

On page 11,

The HTM register a cost of 255707000, the first of such cost incurred. What is this? anyone knows? Default of payment??

Yes, that was one of the key costs that drag down net profit. The other one is the impairment provision in shipbuilding segment.

Base on the report, the explanation was

"In 4Q2013, total cost of RMB256 million was incurred for the Group’s Held-to-Maturity Investments, which were due to tax expenses mainly consisting of sale taxes and its related levies on interest income." - page 12

The impairment provision remains stable for HTM, base on the statement below.

"As at 31 December 2013, impairment provision for
HTM investments of RMB634.6 million remained stable as compared to end of last year." - page 13

I didn't aware that there was such a heavy sale taxes and levies? A new measure to curb "shadow banking"? One time or recurrence? Time to do more research...

(vested)

ya didn't know that there was such a significant levies on HTM. Please share if you found out something.

Tax Rate
I was concern about the tax amount of $622m in their PnL.
Looking at their report, not sure if the tax rate will be high going forward.
"
Group’s effective tax rate for FY2013 was 33%, which is higher than 19% of FY2012. The increase was mainly due to a higher portion of the Group’s profit was attributed by Jiangsu Newyangzi, whose corporate income tax rate had been adjusted from 15% to 25% in FY2013. The average withholding tax rate on Chinese subsidiaries’ distributable profit increased accordingly to 6%. The taxation charge of RMB1,542 million was arrived at after accounting for 6% withholding tax on Chinese subsidiaries’ distributable profit and weighted average corporate tax of 23% of the Group, tax adjustment on the impairment provision of RMB345.7 million made for vessels and change of corporate tax rate on deferred tax of Jiangsu New Yangzi in respect of prior year."


Dividend of 5c
Good to hear that same amount declare.

But SFP only have RMB1,436M Cash & cash equivalent. Dividend of SGD0.05 will need around RMB920M.
Where this money come from?
Reduce their restricted cash 8,416M? HTM 6,879? Anyway why restricted cash increase from 4,170M to 8,416M? Because of collate for loan?
Loan increase significantly. Is it a concern..?

[CityFarmer]

ya didn't know that there was such a significant levies on HTM. Please share if you found out something.

Tax Rate
I was concern about the tax amount of $622m in their PnL.
Looking at their report, not sure if the tax rate will be high going forward.
"
Group’s effective tax rate for FY2013 was 33%, which is higher than 19% of FY2012. The increase was mainly due to a higher portion of the Group’s profit was attributed by Jiangsu Newyangzi, whose corporate income tax rate had been adjusted from 15% to 25% in FY2013. The average withholding tax rate on Chinese subsidiaries’ distributable profit increased accordingly to 6%. The taxation charge of RMB1,542 million was arrived at after accounting for 6% withholding tax on Chinese subsidiaries’ distributable profit and weighted average corporate tax of 23% of the Group, tax adjustment on the impairment provision of RMB345.7 million made for vessels and change of corporate tax rate on deferred tax of Jiangsu New Yangzi in respect of prior year."


Dividend of 5c
Good to hear that same amount declare.

But SFP only have RMB1,436M Cash & cash equivalent. Dividend of SGD0.05 will need around RMB920M.
Where this money come from?
Reduce their restricted cash 8,416M? HTM 6,879? Anyway why restricted cash increase from 4,170M to 8,416M? Because of collate for loan?
Loan increase significantly. Is it a concern..?

I am yet to dig into detail of the report, but let me share my view on the "issues"

Tax rate is higher due to the Jiangsu Newyangzi. I am not familiar with China corporate tax structure, but I believe the tax rate will be "engineered" lower over time by Financial Controller. The average tax rate should stay around 20% over long term, IMO.

Taking static cash reserve as a gauge of dividend paying capability might not be suitable for the company. The dynamic cash flow shouldn't be overlooked. Close to RMB 9 Bil of HTM asset is recycled over a year, which is close RMB 750 mil per month on average.

Yes, restricted cash was collateralized for the increased loan. I will gauge the loan with asset owned. Loan (secured and unsecured) was RMB 13 Bil, while HTM asset alone (current and non-current) was RMB 14 Bil.

(vested, thus might bias)

[CityFarmer]

One more investment on property development in Jiangsu region. The acquisition is acquired at 1x book value, which is not too bad a price, IMO.

(vested)

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The Board of Directors (the “Board”) of Yangzijiang Shipbuilding (Holdings) Ltd. (the “Company”) is pleased to announce that the Company has entered into a sale and purchase agreement (the “Agreement”) to beneficially acquire 100% equity interest in the registered capital of Jiangsu Hengyuan Real Estate Development Co., Ltd (“JHREDCO”) (the “Acquisition”).

Ref: http://infopub.sgx.com/FileOpen/Announce...eID=276408

[CityFarmer]

More investments by the company, to slimline the operation, and thus reducing the cost. I am expecting more acquisition by the company, to take advantage on the recent sector consolidation, but the price must be right.

The price of this acquisition is 1x on the paid-up capital (or book value), thus so far no goodwill accumulation...

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The Board of Directors (the ”Board”) of Yangzijiang Shipbuilding (Holdings) Ltd. (the “Company”) is pleased to announce that the Company had through its wholly-owned subsidiary, Jiangsu New Yangzi Shipbuilding Co Ltd (“JNYSCO”) acquired the remaining 45.53% equity interest in the registered capital of Jiangsu Runzhou Heavy Industry Co., Ltd (“JRHICO”) (the “Acquisition”).

Ref: http://infopub.sgx.com/FileOpen/Announce...eID=276411

[CityFarmer]

Brief report from OCBC Investment Research on the company.

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Yangzijiang Shipbuilding: FY13 results in-line with our expectations
Yangzijiang Shipbuilding (YZJ) reported a 5% YoY fall in its 4Q13 revenue to RMB3.38b and a 8% decrease in PATMI to RMB746.3m, such that FY13 revenue and PATMI declined by 3% and 14% to RMB14.3b and RMB3.10b, respectively. This was within our expectations, as PATMI came in 2% above our FY13 forecast. A first and final DPS of 5 S cents was declared, similar to FY12, and translates into a yield of 4.4%. Looking ahead, YZJ has begun to grow its fleet of vessels owned by the Shipping Logistics and Chartering segment as it sees an improving outlook for the commercial shipping market. We will provide more details after an analyst briefing scheduled later. For now, we place our Hold rating and S$1.22 fair value estimate under review. (Low Pei Han and Andy Wong)

Ref: http://remisiers.org/cms_images/research..._Pulse.pdf

[CityFarmer]

One more report on the company recent end-year result. Base on the current share price performance, the concern is much less on the company shipbuilding prospect, but more on its HTM business. But I am surprised that no analyst report touches on the topic...

(vested)

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Yangzijiang Shipbuilding eyes mega container ships: Update

Yangzijiang Shipbuilding Holdings, a top Chinese shipbuilder, plans to build more mega container ships for shipowners eager to cut operating costs.

Yangzijiang is China’s third-largest listed shipbuilder by market capitalisation and has boasted profit margins that dwarf those of domestic and overseas peers.

Yangzijiang is ready to hand over its first mega container ship in March, which can move around 10,000 standard twenty-foot (TEU) containers, and is planning to build vessels that can handle up to 18,000 boxes.

“We want to make container ships our signature product,” said Ren Yuanlin, Yangzijiang’s chairman.

On the company’s outstanding order book of US$4.6 billion, which rose from US$3.9 billion ($4.9 billion) at the end of September last year, 81 bulk carriers take up 55% of the total value while the rest are container ships, company data showed.

The company said to gain access to the megaship market it will likely offer lower prices than those offered by the Korean yards like Hyundai Heavy Industries Co, Samsung Heavy Industries Co and Daewoo Shipbuilding and Marine Engineering Co.

“It is absolutely the path for Yangzijiang,” said Jon Windham, an analyst at Barclays in Hong Kong, referring to the company’s ambition in building larger ships.

Shipping companies have been under pressure to upsize their vessels in order to cut down fuel costs, despite the fact that capacity growth has outpaced demand increase and freight rates remained under pressure.

“There are two choices if you are a container shipping company; you either exit the business or you order bigger ships,” said Windham of Barclays.

In 2013, containers ships with capacities larger than 8,000 TEU dominated new orders globally. Vessels with a combined capacity of 19.2 million deadweight tonnes (DWT) were ordered, up from 2.7 DWT in 2012, according to the World Shipyard Monitor published by Clarkson Research Services.

Yangzijiang said it plans to deliver another eight 10,000 TEU ships, after handing over the first one to shipowner Seaspan Corp next month.

Q4 NET PROFIT FALLS
Yangzijiang’s fourth-quarter net profit dropped 8% as income from shipbuilding decreased.

It reported a fourth-quarter net profit of 746.3 million yuan ($154.42 million) and a full-year net profit of 3.1 billion yuan, slightly higher than Thomson Reuters SmartEstimate of 3.0 billion yuan.

The pre-tax margin for the year stood at 34.5%, up from 32.9% a year earlier, compared with an industry median of 10%, according to Thomson Reuters data.

The company’s shipbuilding business posted a 43% gross margin due to high-margin contracts secured before the global financial crisis. Shipbuilding prices have since slid, and the company had warned investors that profit margins could be squeezed as construction of ships on lower-margin orders took over the yard’s docks.

The company has recently signed a contract to build two semi-submersible drilling rigs for US$825 million with an option for two similar rigs, the second offshore engineering equipment order it has won since the jackup rig order in 2012.

Ref: http://www.theedgesingapore.com/the-dail...pdate.html

[Greenrookie]

Agreed. Ocbc has an updated research report, but there is no mention about the HtM, especially if the costs are recurring.

The next segment to watch will be property, and how well can they sell their higher end residential units in the backdrop of property curbs, and raising interest rate and seemingly oversupply.

The shipbreaking and steel fab is still making losses, that should be monitor in case it eats into profits ...


I copy highlights of Ocbc report:

Yangzijiang Shipbuilding (YZJ) reported a 5% YoY fall in its 4Q13 revenue to RMB3.38b and a 8% decrease in PATMI to RMB746.3m, such that FY13 revenue and PATMI declined by 3% and 14% to RMB14.3b and RMB3.10b, respectively. This was within our expectations, as PATMI came in 2% above our FY13 forecast. Revenue for its shipbuilding related segment slipped 5% to RMB12.8b in FY13, but gross margin rose 3 ppt to 27.4% due to an exceptionally high gross margin of 43.5% in 4Q13. This was boosted by the delivery of higher margin shipbuilding contracts secured before the financial crisis, discounts from its steel suppliers and write-back of provisions upon vessel deliveries. For its investment segment, revenue rose 15% to RMB1.51b. YZJ also declared a first and final dividend of 5 S cents/share, similar to FY12, and translates into a yield of 4.4%.
“Darkness before the dawn”
Management described 2014 as the “darkness before the dawn”, choosing to remain cautious on its outlook this year, but expects to see a rebound in vessel deliveries in 2015. Current order book stands at US$4.6b, comprising 111 vessels. Looking ahead, YZJ is seeking to clinch new order wins of US$2b in 2014 (FY13: US$2.9b). YTD, YZJ has secured eight effective shipbuilding contracts worth a total of US$260m. It also recently signed orders to build two semi- submersible rigs for US$825m, although the contracts will only be made effective upon collection of deposit from its customers. YZJ’s first 10,000 TEU containership underwent its trial voyage in Feb this year, and the success of this trial gives management optimism that its customer Seaspan will exercise its option for the remaining seven units.

[CityFarmer]

Agreed. Ocbc has an updated research report, but there is no mention about the HtM, especially if the costs are recurring.

The next segment to watch will be property, and how well can they sell their higher end residential units in the backdrop of property curbs, and raising interest rate and seemingly oversupply.

The shipbreaking and steel fab is still making losses, that should be monitor in case it eats into profits ...

May be analysts also have no clue on the "cost", thus no coverage on the topic. The analysts briefing is normally held around the same time as AGM, but at different session.

I am optimistic with the company property venture, base on
- targeted market is within Jiangsu region
- financial strength of the company
- maiden project with the Old Jiangsu yard (premium location), with strong partner (Jiangsu Huaxicun).

(vested)