Yangzijiang Shipbuilding (Holdings)

[weijian]

I have noticed that announcements of expansion CAPEX generally comes at the peak of the booming market (Eg. Seatrium's announcement of a greenfield shipyard in Brazil and consolidation of Spore ops at Tuas came when it was announcing a new rig order every few months). Nonetheless, this is an expansion of current capacities and doesn't look like a big one. We could probably see what happens down the road.

https://links.sgx.com/FileOpen/Corporate...eID=809822

Maybe not a big one compared to profit but RMB3B is about 1/3 to 40% of cost of fixed assets exclude vessels. China getting is not getting cheaper for sure.

Well, I suspect earlier investments into the shipyards, looked expensive then. Therefore, 10years down the road, the current 3billion investment will probably look cheap?

In time to come, could the vessels on the PPE side be divested to entities related to/brokered by YZJFH? With YZJFH doing more vessel investments, YZJSB will probably free up capital which were originally required for financing its own customers.

[weijian]

Things are looking so good that the YZJSB will self-fund their customer's cancelled orders and be "selective" in taking on new orders.

During the boom time, project-based companies generally need a lot of working capital to fund the construction of their projects. YZJSB is no different with a inventory/contract asset turnover of ~ 6 months. But with large amount of contract liabilities (customer deposits), its working capital (receivables/contract assets/inventories minus payables/contract liabilities) as end 1H24 is negative, thanks to a 4bil reversal compared to end FY23. Things are looking fantastic on this front!

Even with the pending 3billion CAPEX on the shipyard expansion, it is pretty clear that cash is building up fast on the BS. Historically, YZJSB's dividend payout ratio is ~30% and the retained capital was accumulated with YZJFH to do its shadow banking business. With YZJFH already spun off, the natural question would be Where will that excess capital go now?

From AR23, Ren Junior is paid ~600k sgd and top5 KMP a total of 900k sgd. Rens are getting close to 20mil of dividends instead, while its YZJSB Employee Trust gets ~10mil too. Nice Common Prosperity theme.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2024

During 1H2024, Yangzijiang Shipbuilding secured a total of 79 new orders worth USD8.5 billion with 79% of new orders for green vessels with the likes of gas carriers, LNG dual-fuel vessels, and methanol dual-fuel vessels. With six more months remaining, the Group has already surpassed its FY2024 new order target of USD4.5 billion. In 1H2024, the Group also terminated the shipbuilding contracts for two units of 175,000CMB LNG carriers. The Group will utilize our own funds to complete their constructions and subsequently sell them on the market.

As of 30 June 2024, the Group has an outstanding orderbook of USD20.2 billion for 224 units of vessels.

In terms of vessel deliveries, the Group is on track to meet the full-year target of 63 vessels. As of 30 June 2023, Yangzijiang Shipbuilding has delivered 37 vessels, including 2 vessels built for its own fleet. In the near term, and given the current capacity of the yards, the Group will be selective on adding new orders to its record orderbook.

https://links.sgx.com/FileOpen/YZJSH_1H2...eID=815163

[weijian]

They definitely needed the money to smoothen out the unpredictable shipping cycle. I vividly remember reading the earlier financial statements and was glad the finance part of it was helping them through leaner times. But of course they did not need the money as a going concern.

So will the shipbuilding again invest in the finance division going forward, I would think it is wise to do. The sums are sizable, better to manage your own money than to have someone else manage it for you.

I have shifted my response/thoughts on this YZJFH's post to the shipbuilding thread to continue the discussion.

When the finance arm was under the same company, 30% dividend payout ratio was suitable. Now that the finance arm is spun off and the ship building business is going to throw out more cash in the current upcycle, few things could happen (at the same time):

(1) An increased dividend payout Common Prosperity style, since Employee Trust benefits too. Even a small increase from 30% to 40-50% would be welcomed.  This is the thing that most OPMIs want.

(2) Retaining most of the capital to cushion the inevitable future downturn. Many SOE child companies let their parents' treasury function manage their excess cash (eg. Tianjin Pharm DRT dual-listed on SGX). YZJSB does not have a parent but got itself a younger brother with similar capabilities. So is there a good chance that it employs its younger brother to manage the excess cash?

(3) Expanding capabilities or diworsification. Rens have bought more stakes from their JV partners and started new greenfield shipyards - These are right moves, IMHO. They could of course continue to expand their LNG terminal/storage assets too. Let's just hope they don't get more investment properties.

[weijian]

When your competitors merge, it is a threat. But it could also be an advantage if it moves towards an oligopolistic-like situation.

Their Korean competitors started their own merger game first and have hit anti-trust roadblocks. It should probably not be a problem for the Chinese, I suppose.

Chinese state shipbuilders plan merger with eye on 'strong military'

Both companies said the top goal is to "further focus on major state strategy." That is a strong hint that the move is led and endorsed by the government.

"Promoting equipment for a strong military" was also mentioned as a priority. Both companies supply the Chinese armed forces, including the country's homegrown aircraft carriers. Other goals include pursuing "high-quality development" of their ship assembly businesses, limiting horizontal competition and enhancing the management quality of listed entities.

https://asia.nikkei.com/Business/Compani...g-military

[specuvestor]

(Bloomberg) -- Yangzijiang Shipbuilding shares rise the most in a month after the company agreed to buy a 34% equity stake in Tsuneishi Group Zhoushan Shipbuilding.
The shares rise as much as 3.2%, the most since Aug. 13
Tsuneishi Group is primarily in the shipbuilding business, such as construction of new bulk carriers, and has the largest repair network in Japan, according to Yangzijiang’s announcement after market close on Thursday

https://www.valuebuddies.com/thread-1076...#pid171769

If my memory serves me correct, the finance arm was setup to deploy the cash from the shipbuilding business which they were able to secure high initial deposits from their clients for reasons that till today I'm not too sure if I reference to other shipbuillders (my suspicion is that they sell cheaper than market but demand higher deposit or stage payments... this is again evident by the cash piling up in the YZJ shipbuilding thread)

Hence the finance arm had money to lend to the wenzhou property market and trusts etc. The shipbuilding business didn't need the money

Now it will be instructive to see how the shipbuilding business will use their cashpile going forward.