Yangzijiang Shipbuilding (Holdings)

[CityFarmer]

It is mentioned they expect 12% return from their HTM annually. I remember they used to classify their HTM according to yield, like 1-2 times PBOC rate, 2-3 time PBOC rate. If their target is 12%, I think they need to have some HTM at 2-3 times PBOC, which to me, are actually high risk HTM, and I suspect this group of HTM is increasing significantly, which is why they stop giving this figure.

I have a unproven view on the company investment vision i.e immediate target of 12% in FY2014, and 15% within 3 years horizon.

The previous model is a tri-parties trust company with banks, which banks have a cut on the interest income. The increase in interest might come from removing banks' role on its investment. It isn't possible with the previous regulation, but might be possible after the regulator allows private fund to participate in banking service.

That might allow the company to achieve 12% without embarking higher risk. I am still figuring out the company strategy to increase the return to 15%...

Just to share a preliminary view.

[Clement]

It is mentioned they expect 12% return from their HTM annually. I remember they used to classify their HTM according to yield, like 1-2 times PBOC rate, 2-3 time PBOC rate. If their target is 12%, I think they need to have some HTM at 2-3 times PBOC, which to me, are actually high risk HTM, and I suspect this group of HTM is increasing significantly, which is why they stop giving this figure.

I have a unproven view on the company investment vision i.e immediate target of 12% in FY2014, and 15% within 3 years horizon.

The previous model is a tri-parties trust company with banks, which banks have a cut on the interest income. The increase in interest might come from removing banks' role on its investment. It isn't possible with the previous regulation, but might be possible after the regulator allows private fund to participate in banking service.

That might allow the company to achieve 12% without embarking higher risk. I am still figuring out the company strategy to increase the return to 15%...

Just to share a preliminary view.

Hi Cityfarmer,

Correct me if I'm wrong, I interpret the statements as describing separate investment mandates (12% target for credit and structured products.) I think the 15% p.a over 3 years target relates to venture capital style investments going forward.

For convenience of everyone, here's the relevant statement from the AR2013.

"Last year, we increased our financial assets held-to-maturity by 24.2% to RMB14.1 billion and redeemed RMB8.9 billion of this amount. The rate of default was less than 5%. Most of the default investments were reclaimed through the sale of collaterals.

About 60% of our capital is redeemed every year. In 2014, we will develop a model to manage financial assets for higher yields within acceptable risk constraints for a cumulative annualized yield of 12%. We will work toward maximizing our assets under management by tapping on domestic PRC and overseas financial markets, as well as by leveraging on government support for shipbuilding enterprises.

The experience that our investment team has gleaned from our venture capital forays has helped us to articulate an investment mandate suitable for the Group’s capital ventures. We target cumulative annualized yield of 15% over a 3-year investment horizon.

We intend to exit these venture investments by spinning off the subsidiary for an IPO or by reverse takeover of a listed shell in China. This will expand our access to funds to include the domestic PRC capital market, in addition to our Singapore and Taiwan listed company status."

[CityFarmer]

I have a unproven view on the company investment vision i.e immediate target of 12% in FY2014, and 15% within 3 years horizon.

The previous model is a tri-parties trust company with banks, which banks have a cut on the interest income. The increase in interest might come from removing banks' role on its investment. It isn't possible with the previous regulation, but might be possible after the regulator allows private fund to participate in banking service.

That might allow the company to achieve 12% without embarking higher risk. I am still figuring out the company strategy to increase the return to 15%...

Just to share a preliminary view.

Hi Cityfarmer,

Correct me if I'm wrong, I interpret the statements as describing separate investment mandates (12% target for credit and structured products.) I think the 15% p.a over 3 years target relates to venture capital style investments going forward.

For convenience of everyone, here's the relevant statement from the AR2013.

"Last year, we increased our financial assets held-to-maturity by 24.2% to RMB14.1 billion and redeemed RMB8.9 billion of this amount. The rate of default was less than 5%. Most of the default investments were reclaimed through the sale of collaterals.

About 60% of our capital is redeemed every year. In 2014, we will develop a model to manage financial assets for higher yields within acceptable risk constraints for a cumulative annualized yield of 12%. We will work toward maximizing our assets under management by tapping on domestic PRC and overseas financial markets, as well as by leveraging on government support for shipbuilding enterprises.

The experience that our investment team has gleaned from our venture capital forays has helped us to articulate an investment mandate suitable for the Group’s capital ventures. We target cumulative annualized yield of 15% over a 3-year investment horizon.

We intend to exit these venture investments by spinning off the subsidiary for an IPO or by reverse takeover of a listed shell in China. This will expand our access to funds to include the domestic PRC capital market, in addition to our Singapore and Taiwan listed company status."

The company has participated on venture capital to provide seed capital, but on a very small scale with minority stake on few companies.

I interpreted the statement as the experience from the venture capital will help the team to articulate an investment mandate for the Group's capital venture (i.e. the investment).

It seems confusing, I am still trying to find more clues to support my interpretation.

[yawnyawn]

Looks like there are more companies defaulting on their loans in the Jiangsu and Zhejiang province. When i look at HTM financial assets on Page 128 of the AR2013, i noticed there is an increase of HTM financial assets from RMB1.4b to RM6.1b classified under Others in the borrowers' industry. In FY13, default rates on HTM investments were less than 5%, with most repaid through sale of collateral. I presume there will be more impairments in the coming quarters.

Note that the article states that solar, steel and real estate were the biggest source of NPLs in the Jiangsu region. And 44% of the YZJ's HTM financial assets are to the real estate sector!

[Image: mf1cX7r.png]

(not vested)

Yangtze River Delta becomes epicentre for China credit risk

(Reuters) - Suzhou, an ancient city in Jiangsu province 100 km (60 miles) west of Shanghai, lives in legend as one of China's most beautiful, famous for its elegant gardens and charming canals.

More recently, it became an industrial powerhouse, sitting at the heart of the Yangtze River Delta region that, along with the Pearl River Delta in Guangdong, drove China's economic boom. Now it is ground zero for a painful corporate de-leveraging that has tacit government approval. One third of all loan delinquencies come from the region, and credit is getting harder to come by.

"The more banks do this, the more they promote a vicious cycle, and companies are even less able or willing to repay their loans," said Zhou Dewen, vice chairman of the China Association of Small and Medium Enterprises.

The Yangtze River Delta (YRD) covers the financial capital of Shanghai and the eastern provinces of Zhejiang and Jiangsu. In 2012, it accounted for half of China's exports and attracted 57 percent of its foreign direct investment.

The outsized role of small, private firms, their savvy entrepreneurs and the vibrant underground financing networks that supported them have been a source of strength for the YRD. But now it may be a vulnerability as the government shows it is prepared to let companies fail -- at least private ones.

Among the six largest domestic banks that classify their non-performing loans geographically, this region accounts for one-third of their bad debts. "The YRD's economy has been pretty seriously battered. Risks are multiplying," said a risk-management executive at a mid-sized bank in Shanghai.

Economists say a series of isolated defaults would be mostly positive in the long run for China, by improving risk pricing and the efficient allocation of capital. But there is a risk that defaults could trigger a chain reaction of credit problems that has the potential to destabilise China's financial system, similar to the way global markets froze after the collapse of Lehman Brothers in 2008.

The region can already claim China's first domestic bond default, after Shanghai Chaori Solar Energy Science and Technology Co Ltd missed a bond interest payment last month. Last week, a synthetic yarn-maker in Zhejiang declared bankruptcy, raising the prospect of default. That firm's bond carries a guarantee from another textile company, highlighting linkages between firms that some worry can amplify risks.

The government's hands-off approach is a clear shift from its bailouts of the past -- including of Chaori, which in 2013 received assistance from a district government in Shanghai that enabled it to make a coupon payment.

BAD-DEBT MANAGEMENT

Private companies in the YRD control 28 percent of assets held by industrial firms, compared to a national rate of 19 percent, according to Reuters calculations based on official data. The true ratio in the YRD is likely higher, since official figures only cover firms with annual operating revenue above 20 million yuan.

"Some specific industries bring risk," said Xu Chengming, professor at Nanjing University of Finance and Economics, located in Jiangsu's provincial capital. Xu said solar panels and steel were the biggest sources of non-performing loans in Jiangsu. The channelling of funds into speculative investments, such as real estate, has further amplified risks.

Not surprisingly, Jiangsu was the first local government to establish its own bad-loan asset management company, modelled on the asset managers that Beijing used to clean up the balance sheets of the country's four biggest banks, followed by Zhejiang and Shanghai.

Most analysts think bad loans, both in the YRD and nationally, are higher than official figures indicate, as banks can extend overdue loans and use other techniques to disguise delinquencies.

"These are China's most developed places. The most developed places are growing the slowest," said Zhu Tian, chair of the economics department at China Europe International Business School in Shanghai. "If growth is slowing, you are going though some kind of transition, and some low value-added industries will have to die."

[CityFarmer]

Note that the article states that solar, steel and real estate were the biggest source of NPLs in the Jiangsu region. And 44% of the YZJ's HTM financial assets are to the real estate sector!

I would like to refer to one para in the AR2013, page 9

"Secondly, many of our financial investments customers put up properties and land use rights as collateral. In the event of default, the foreclosed collateral can be redesignated as our property development landbank. In such foreclosures, our landbank cost will be relatively low as collateral is valued at a fraction of the borrower’s land acquisition price."

Defaults on real estate sector, might be a blessing to YZJ, with vision to make its property segment as one of the five revenue generators in near future.

(vested)

[Greenrookie]

Note that the article states that solar, steel and real estate were the biggest source of NPLs in the Jiangsu region. And 44% of the YZJ's HTM financial assets are to the real estate sector!

I would like to refer to one para in the AR2013, page 9

"Secondly, many of our financial investments customers put up properties and land use rights as collateral. In the event of default, the foreclosed collateral can be redesignated as our property development landbank. In such foreclosures, our landbank cost will be relatively low as collateral is valued at a fraction of the borrower’s land acquisition price."

Defaults on real estate sector, might be a blessing to YZJ, with vision to make its property segment as one of the five revenue generators in near future.

(vested)

I think we need to be clear about the impact of a writedown of HTM on price of counter. There are 2 impacts, one on the price of the counter, second on the business.

There is no way we can guage the impact on the writedown of HTM on price of counter, my gut feel is then they will be many doomsayers, and many will say YZJ is dying, I will not be surprised if YZJ due to the bad sentiments them fall to 70 cents or below.

However, when we talk about Impact on business, we can give a number to it. We have to understand that YZJ's HTM are assets, investment made during its cash rich days, it is not leveraged investment.

Is it likely that ALL HTM will go bad? Maybe the 15% of HTM that are over 2 years might go bad. Lets assume zero returns from this 15%.

Given they have a target 12% return, which is about 2X PBOC. Assume again those of 1X PBOC rate of HTM makes up only 20% of HTM, the worst case scenario is 80% default. So, NAV will fall drastically, but is the business going Kapo? NAV will be 40 cents...PE will be 11.4 (Assume price $1). Is this too excessive for a successful shipbuilding business?

For worst case scenario, YZJ is going to lose 1 billion RMB rev and profits. YZJ made 3 billion NP in 2013, and they have seen better times. YZJ will survive, and this scenario is highly unlikely, but if it happens, most probably it is cold comfort that most of your counters will be experiencing blood bath.

If it is the more probable 15% default, then impact on earning will be a more reasonable 200 million. NAV will still be about 80 cents. PE will hardly be affected.

Then we have to take into consideration Ren's track record, and his withdrawal strategy to inject such assets into an IPO...

I am not saying YZJ is a screaming buy now, but I do think if market goes into a frenzy and quote YZJ at 70 cents, it might offer me good reasons to accumulate. But that is assuming some default happen.

If you think YZJ is going to exceute the shipbuilding part poorly together with the default of HTM, then of course, you shouldn't be looking at it at all.

[CityFarmer]

Let me chip in on the default rate.

Under the worst period for China bank during 1990s, the estimated NPL ratio was approx 40%. The extreme situation was under decades of policy lendings. We will never know the default rate, but the worst case should be within 40%.

IMO, YZJ's HTM default rate should never above the 40%. YZJ's credit quality should be better than policy lendings. In my valuation model, the worst case is 40% write-down of HTM asset.

(vested)

[Greenrookie]

Not sure watt to make of this announcement:

http://infopub.sgx.com/FileOpen/YZJ-Anno...eID=292655

Key sentence : enhance management expertise in cash redeployment.

Wonder who are its joint partners, why 7 years lifespan? Sound suspiciously like they are trying to offload HTM at this company, but HTM has nothing to do with materials and technology. I am linking too much dots?

[CityFarmer]

Not sure watt to make of this announcement:

http://infopub.sgx.com/FileOpen/YZJ-Anno...eID=292655

Key sentence : enhance management expertise in cash redeployment.

Wonder who are its joint partners, why 7 years lifespan? Sound suspiciously like they are trying to offload HTM at this company, but HTM has nothing to do with materials and technology. I am linking too much dots?

This is a VC company, with total paid-up capital of 500 mil RMB. The company has invested 150 mil RMB, thus a 30% equity holding associate. The company has two existing VC associates already, with approx 20% equity holdings. I will not read too much on the venture, beside knowing that the company seems expanding its VC business.

(vested)

[Ken123456]

result is out but puzzle there is no tax adjustment yet.

Read back the previous announcement "The income tax adjustment arising from the Accreditation for year 2013 will be reflected in the Group’s FY2014 financial statements."

Read the Q1 current report "The Group made no material adjustment for under or over provision of taxation in respect of prior year."

Not sure if it mean it will adjust on 2014Q4.

Anyone attending AGM today? Please do update us the people here. Thank you