Thursday, February 27, 2014

Yangzijiang: results within expectation but look out for HTM investment costs

I am generally please with YZJ's results.

Dividend is maintained at 5 cents.

Shipbuilding margin is stable.

Offshore arm showing progress with YZJ confirming the signing of 2+2 semi-submersible rigs (with PPL), although YZJ did not consider the contract effective since no deposit is received. I consider this prudent management.

Some progress made in the property development arm too, with new acquisition made.

However,  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. A result of the clampdown on shadow banking?

I am ok with HTM supplementing YZJ revenue stream, but not very comfortable with it increasing, it is 14 billion rmb now. Also, it makes a lot of difference if such costs is recurring yearly or worse, quarterly. I hope the subsequent investor briefing will shed some light on this.

I am still holding to this though.

1) I believe the shipping cycle is still on upturn

2) Ren Yuanlin has proved to be a shrew and effective businessman that is able to close deals, and expand the business. Shipbuilding business is smooth, offshore making headway. Property arm will come into play over the next few years,given it is a joint venture, I believe Ren will learn quickly, but it is still a wildcard now. It has 5 business segments now. My FAT HOPE is that he will spin them off into separate entity when they grow big enough, just like Keppel. FAT HOPE? Well, not going to happen anytime soon, but who is to say it is not possible?

Buy more? Nope, it is already the biggest counter in my portfolio. I do not want over-concentration risk, at least not at this price, with the HTM future still uncertain.

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