Yangzijiang Shipbuilding (Holdings)

[Nick]

Yangzijiang is one of the largest and more consistent ship-builders listed in SGX. Currently, its market capitalization stands at S$7.7 billion so its not a puny S-Chip.

Yesterday, it announced that it managed to clinch over US$415 million worth of ship building contracts for 15 vessels:

http://info.sgx.com/webcoranncatth.nsf/V...600240D4F/$file/Announcement_20110112.pdf?openelement

Personally, I liked this company for its strong balance sheet (huge cash hoard), consistent cash-flow, decent margins, low capex business and potential growth prospects (by acquiring struggling yards or moving into new vessel designs).

9M 10 Summary
Revenue: RMB 8.83 billion
Net Profit: RMB 2.11 billion
Cash Less ALL Liabilities: RMB 299 million

I sold YZJ for a decent profit last year as I felt it may not be able to replicate its current levels of profitability since its current contract wins may not be of similar level of margins. But in light of its recent yard acquisitions and normalizing of newbuilding prices to 2006/07 levels, could there be room for more growth ? Is it worth purchasing at a PER of 13 ?

(Not Vested)

[freedom]

for Yangzijiang, a valid concern is whether there is going to be more orders of vessels in the future.

the way BDI fell off a cliff does not indicate a better future for Yangzijiang, especially, all recent orders were dry bulk ships. for dry bulk ships, the competition is just too fierce.

major liners all went to Korean shipyard for better and larger containerships.

Evergreen went to Samsung, Maersk went o Hyundai, NOL went to Daewoo, OOCL went to Hudong zhonghua.

[Nick]

for Yangzijiang, a valid concern is whether there is going to be more orders of vessels in the future.

the way BDI fell off a cliff does not indicate a better future for Yangzijiang, especially, all recent orders were dry bulk ships. for dry bulk ships, the competition is just too fierce.

major liners all went to Korean shipyard for better and larger containerships.

Evergreen went to Samsung, Maersk went o Hyundai, NOL went to Daewoo, OOCL went to Hudong zhonghua.

Don't think YZJ has the technology to build large vessels. At the moment, the Koreans are leaders in that field.

Not too sure whether they will get the PPL yard too.

Ship-Breaking is a lucrative industry but not sure how it is progressing.

A significant source of their profits is from the interest income earned from their huge bond investments. I think around RMB 100 mil per quarter.

[Nick]

YZJ (3Q Press Release) -

Other income comprising of interest income generated from held-to-maturity investments and cash deposit more than doubled to approximately RMB203.0 million in 3Q2010 as compared to RMB88.0 million in 3Q2009. This was consistent with the increase in the investments in financial assets held-to-maturity during the period. Those financial assets held-to-maturity invested by the Group were primarily financial products that are offered by Chinese banks used in the financing of Chinese corporate and entities. These products fetch an average annual return of about 10% and are usually backed by various collaterals such as listed shares and land titles.

At 3Q 2010, YZJ holds RMB 7.89 billion worth of financial assets which generated interest income of RMB 203.0 million in 3Q 2010. This works out to a yield of 10.2%. Pretty decent return but I daresay a 10% note should be termed as junk bond right ?

[Musicwhiz]

Pretty decent return but I daresay a 10% note should be termed as junk bond right ?

Yes, that's my line of thinking too. Then again, maybe YZJ hit upon some private equity goldmine that we may not know of?

[Foxer]

Pretty decent return but I daresay a 10% note should be termed as junk bond right ?

In 2010, in China food prices rose 9.6%, and producer price index increase by 5.9%.

Given the inflation rate, the real rate of return is maybe only around 4%?

[Nick]

Another year of record earnings for Yangzijiang - earnings of RMB3.0 billion for FY2010

http://info.sgx.com/webcoranncatth.nsf/V...E0060F3F4/$file/Announcement.pdf?openelement [SGX Announcement]

http://info.sgx.com/webcoranncatth.nsf/V...E0060F3F4/$file/Pressrelease.pdf?openelement [Press Release]

http://info.sgx.com/webcoranncatth.nsf/V...E0060F3F4/$file/PPT.pdf?openelement [PPT Slides]

It has been a hugely successful year for YZJ which I personally believe is the best shipbuilder listed here judging by its strong operation execution with 0 cancellations and stable margins. It formed a few JVs to expand its technology, diversified its revenue stream into ship breaking and ship scrap metal recycling, purchased struggling shipyards to boost its own capacity while capturing new orders. Its earnings will also be driven by its own 10% yielding investments. It has increased its investments to over RMB 8.4 billion which resulted in interest income of RMB 876 million for the year. YZJ has certainly found a decent place to park its excess cash though I am not too certain how well protected its capital will be. It is interesting to see it setting up venture capital companies as well - national service perhaps ?

With that being said, the low BDI levels may reduce its contract wins going forward or even face delivery delays or contract re-negotiations. PPL Yard outcome is not certain either.

(Not Vested)

[Nick]

1) SUBSCRIPTION OF SHARES IN JIANGSU RENHE NEW ENERGY INDUSTRIAL INVESTMENT CENTRE (LIMITED PARTNERSHIP) (“JNRH”)

http://info.sgx.com/webcoranncatth.nsf/V...600165D5C/$file/Announcement_renhe.pdf?openelement

JNRH is a venture capital investment fund that will aim to generate capital gains from providing seed capital. This investment is expected to enhance the management's expertise in cash redeployment. YZJ is investing RMB 500 million into the fund.

2) INCORPORATION OF JIANGSU TIANCHEN MARINE IMPORT AND EXPORT CO., LTD

JTMIECO provides services to shipbuilders to facilitate the sale and export of vessels. The investment is expected to reduce the dependency on the sale and export of vessels by third party for shipbuilding business of the Group. YZJ is investing RMB 100 million into its subsidiary.

http://info.sgx.com/webcoranncatth.nsf/V...6001293C0/$file/Announcement_tianchen.pdf?openelement

3) Yangzijiang to expand shipbuilding capacity, increases stake in Xinfu yard to develop it as a shipbuilding yard for building large vessels

- Yangzijiang to invest USD57.15 million to increase its stake from 20% to 60% in the Xinfu yard
- Total capex of RMB4 billion would be put in the yard over 3 years and yard expected to start operations from early 2013
- Xinfu expected eventually to reach an annual output of 3 million DWT or equivalent to 10 very-large crude carriers or 12 10,000TUE containerships

http://info.sgx.com/webcoranncatth.nsf/V...6001738AB/$file/PressRelease.pdf?openelement

YZJ has been investing heavily over the past 18 months to beef up its capability and earning power. It still generates huge amount of cash and I don't expect it to be a net debt company any time soon. Based on its last traded price, YZJ market capitalization stands at $7.1 billion. It reported FY 2010 earnings of RMB 3 billion.

(Not Vested)

[freedom]

the one that is making a lot of money for Yangzijiang is its container shipbuilding, specifically, 4250-TEU container shipbuilding.

any new orders for 4250 TEU container ship?

dry bulk margin is unbelievably low. and almost any shipyard in China can build dry bulk.

[Nick]

I believe YZJ is negotiating with Seaspan for the 10 X 10,000 TEU container vessel order worth around US$900 million. Gross margin will be around the high single digit.

Its investment income will be a major component of its FY 2011 earnings IMO.