Yangzijiang Shipbuilding (Holdings)

[Ken123456]

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)

I have analyse the presentation slight but am abit worry for FY2014 report.

Although order book is strong. if you go to page 15,order book of 4.6B will be from 2013 to 2010(FY13 2.9B+FY12 0.3B+ FY11 1.16+FY10 0.24) order. So will 2014 see a record low of revenue from Shipbuilding due to remaining order from 2010 and low order from FY2011/12? How does YZJ recognise revenue? Anyone can confirm?

[CityFarmer]

I have analyse the presentation slight but am abit worry for FY2014 report.

Although order book is strong. if you go to page 15,order book of 4.6B will be from 2013 to 2010(FY13 2.9B+FY12 0.3B+ FY11 1.16+FY10 0.24) order. So will 2014 see a record low of revenue from Shipbuilding due to remaining order from 2010 and low order from FY2011/12? How does YZJ recognise revenue? Anyone can confirm?

The best reference for the question, is from the Annual Report, at the section explaining "Revenue recognition"

[Greenrookie]

I have analyse the presentation slight but am abit worry for FY2014 report.

Although order book is strong. if you go to page 15,order book of 4.6B will be from 2013 to 2010(FY13 2.9B+FY12 0.3B+ FY11 1.16+FY10 0.24) order. So will 2014 see a record low of revenue from Shipbuilding due to remaining order from 2010 and low order from FY2011/12? How does YZJ recognise revenue? Anyone can confirm?

The best reference for the question, is from the Annual Report, at the section explaining "Revenue recognition"

I think Ren himself admits that 2014 will be "darkest moment" before dawn. It is true, there is an article from Nextinsight. But I am
Not sure if sell first buy again is the right strategy.

[CityFarmer]

I have analyse the presentation slight but am abit worry for FY2014 report.

Although order book is strong. if you go to page 15,order book of 4.6B will be from 2013 to 2010(FY13 2.9B+FY12 0.3B+ FY11 1.16+FY10 0.24) order. So will 2014 see a record low of revenue from Shipbuilding due to remaining order from 2010 and low order from FY2011/12? How does YZJ recognise revenue? Anyone can confirm?

The best reference for the question, is from the Annual Report, at the section explaining "Revenue recognition"

I think Ren himself admits that 2014 will be "darkest moment" before dawn. It is true, there is an article from Nextinsight. But I am
Not sure if sell first buy again is the right strategy.

Time to get reminded by THE most important value investing rule.

Never Try To Time The Market. You can't outsmart the market. Nobody can.

[CityFarmer]

OSK-DMG analyst report. The final valuation is pretty close to mine, base on FY14 result.

(vested)
---------
Yangzijiang Results Review: Positioned For Turn In Sentiment (BUY,
SGD1.14, TP: SGD1.55)
Lee Yue Jer, +65 6232 3898 (yuejer.lee@sg.oskgroup.com)
Jason Saw, +65 6232 3871 (jason.saw@sg.oskgroup.com)
YZJ’s FY13 PATMI of CNY3.1bn was in line. FY14 will be its toughest
year, but a recovery in FY15 is expected due to orders of USD4.64bn
in hand. Margins will fall, but mitigated by revenue rising on higher
work volume. Note that the street is far too downbeat on its HTM
business. Maintain BUY, with our SOP-based TP raised to SGD1.55
(11.3x/10x FY14/15 P/Es), which is reasonable for China’s most
profitable yard operating in a recovering industry.
Core results stronger than reported. Yangzijiang (YZJ)’s 4Q13 results
included a one-off CNY350m impairment charge on its fleet of 10 vessels
and an additional expense of CNY185m on held-to-maturity (HTM)
earnings, as it incorporated sales taxes on revenue from past quarters into
its numbers. Without these charges, 4Q13 profit would have been close to
CNY1.2bn (vs CNY0.75bn as reported). Going forward, we see the
company’s FY14 revenue and margins falling, but its strong USD4.64bn
orderbook indicates a rapid recovery of revenue in FY15, which will overcompensate
for the thinner margins. Note that YZJ has consistently
surprised on the upside for margins.
Street too pessimistic on HTM business, but sentiment will turn. YZJ
has been in the HTM business for five years, during which its HTM assets
have earned over CNY4bn on an average CNY9bn invested. The default
rate has been below 5%, with all principal and interest recovered via sale of
collateral. We believe that its multiple levels of risk management are
sufficient. Recent fears over YZJ’s trust products in China are misplaced as
its structure, collateral and profile of borrowers are different. We believe the
street will eventually see the HTM business as part of YZJ’s core business
(much like General Electric (GE US, NR) and General Electric Capital
Corp), and accord a higher valuation to this high-yield, well-collateralised
business.
Assume coverage, TP rises to SGD1.55. Lee Yue Jer will assume
coverage of YZJ from Jason Saw. We now value its HTM assets at 1.1x of
its expected end-FY14F balance of CNY11bn, to factor in one year of HTM
earnings, less net debt, plus 9x FY14F shipbuilding earnings in FY14F to
derive a TP of SGD1.55. This implies 11.3x/10x FY14/15F P/Es, which is
reasonable for China’s most profitable yard. The shipbuilding industry is
seeing a cyclical recovery - asset prices rose c.10% in FY13 and are up 5%
YTD. YZJ’s yard is also full to FY15. Meanwhile, investors are being paid to
wait with a 4.4% yield. BUY.

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

[CityFarmer]

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...

Base on preliminary research, China is embarking on an ambitious reform program since 2012, which will replace existing Business Tax (BT) by Value-Added-Tax (VAT) on service sectors. Financial service sector is one of the targeted industries.

Barring further info from the Annual Report 2013, I assume the RMB 256 mil sale taxes/levies are the newly deployed VAT on its HTM product. Base on the number from end-year FR page 13, RMB 256 mil sale taxes/levies with RMB 1414 mil of interest income, means 18% taxes (assume the tax is back-dated to fully year of 2013), which is very close to existing maximum VAT of 17%.

Ref: http://www.blankrome.com/index.cfm?conte...temID=2971

Should we discount the valuation, base on the new taxes? IMO, VAT is a sale tax, which can be easily transfer to end-users i.e. the borrowers, especially during liquidity tightening period now.

Have the company transfer the cost to borrowers? No info available yet in the recent FR. The tax was deployed at the last Q of FY2013, may be the company needs time to respond to the new challenge.

(vested)

[CityFarmer]

Picked up more below $1.10 per share, amid the fear of shadow banking default, and the "darkest moment before dawn".

I am poor in market timing. The investment is meant for long term. The dawn should come over long term.

The fear of the YZJ investment default is unfounded, base on the company investment strategy and risk management policies, IMO.

Well, I might catch a falling knife, instead of a gem.

(vested)

[CityFarmer]

Base on preliminary research, China is embarking on an ambitious reform program since 2012, which will replace existing Business Tax (BT) by Value-Added-Tax (VAT) on service sectors. Financial service sector is one of the targeted industries.

Barring further info from the Annual Report 2013, I assume the RMB 256 mil sale taxes/levies are the newly deployed VAT on its HTM product. Base on the number from end-year FR page 13, RMB 256 mil sale taxes/levies with RMB 1414 mil of interest income, means 18% taxes (assume the tax is back-dated to fully year of 2013), which is very close to existing maximum VAT of 17%.

Ref: http://www.blankrome.com/index.cfm?conte...temID=2971

Should we discount the valuation, base on the new taxes? IMO, VAT is a sale tax, which can be easily transfer to end-users i.e. the borrowers, especially during liquidity tightening period now.

Have the company transfer the cost to borrowers? No info available yet in the recent FR. The tax was deployed at the last Q of FY2013, may be the company needs time to respond to the new challenge.

(vested)

Further clue on the HTM's sale tax, from a MayBank Kim Eng report.

"Lumpy recognition of sales taxes of previously unrecognised portion. Management has guided that sales tax will drop to 6% going forward." - page 2 of the report

Base on the input, the VAT is actually 6%, which is the lowest among sectors. The 6% is also the likely rate for bank interest income, once the VAT deployed on banking sector.

Ref: http://research.maybank-ib.com/pdf/docum...4_5859.pdf

[Greenrookie]

Base on preliminary research, China is embarking on an ambitious reform program since 2012, which will replace existing Business Tax (BT) by Value-Added-Tax (VAT) on service sectors. Financial service sector is one of the targeted industries.

Barring further info from the Annual Report 2013, I assume the RMB 256 mil sale taxes/levies are the newly deployed VAT on its HTM product. Base on the number from end-year FR page 13, RMB 256 mil sale taxes/levies with RMB 1414 mil of interest income, means 18% taxes (assume the tax is back-dated to fully year of 2013), which is very close to existing maximum VAT of 17%.

Ref: http://www.blankrome.com/index.cfm?conte...temID=2971

Should we discount the valuation, base on the new taxes? IMO, VAT is a sale tax, which can be easily transfer to end-users i.e. the borrowers, especially during liquidity tightening period now.

Have the company transfer the cost to borrowers? No info available yet in the recent FR. The tax was deployed at the last Q of FY2013, may be the company needs time to respond to the new challenge.

(vested)

Further clue on the HTM's sale tax, from a MayBank Kim Eng report.

"Lumpy recognition of sales taxes of previously unrecognised portion. Management has guided that sales tax will drop to 6% going forward." - page 2 of the report

Base on the input, the VAT is actually 6%, which is the lowest among sectors. The 6% is also the likely rate for bank interest income, once the VAT deployed on banking sector.

Ref: http://research.maybank-ib.com/pdf/docum...4_5859.pdf

I think. Maybank research is a good one relative to other hyper bullish reports on YZJ.

I however, do not agree with its valuation.

It used earnings of core building business but NAV for HTm

I made the following assumptions when I invested in YZJ:

That HTM bad loans, not recoverable will be less than 5% or zero.
If they start having bad loans, dun think market will just give a 10% mark down.

As for offshore execution risk and margin, we will need to see how try deliver their first rig.

In short, Maybank see risks, and rightly so, but I are promise, due to their performance thus far. But I am bad at timing, there might be a better time to buy, but since I already has some MOs, I will just stay put.

(Vested)

[CityFarmer]

The tax issue of Jiangsu New Yangzi was settled pretty fast, from the tax rate of 25% to 15%. The best part is the new rate started from FY13, which means tax rebates in FY14.

Since the interest income from investment will be charged by VAT, so no more BT. The overall tax rate will be further reduced in FY14, IMO

(vested)

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The Board of Directors (the “Board”) of Yangzijiang Shipbuilding (Holdings) Ltd. (“YZJ” or the “Company”) is pleased to announce that its wholly-owned subsidiary, Jiangsu New Yangzi Shipbuilding Co., Ltd (“JNYS”) has been accredited as a “High/New Technology Enterprise” (“HNTE”) by Jiangsu Ministry of Science and Technology Department (the “Accreditation”). Upon the approval from the tax authority, JNYS will be enjoying a preferential corporate income tax rate of 15% for a period of 3 years starting from the fiscal year of 2013 by virtue of a preferential tax policy for accredited enterprises, as opposed to the prevailing corporate income tax rate of 25%.

Ref: http://infopub.sgx.com/FileOpen/Announce...eID=289244