Recent Action: Yangzijiang

"I am a poor Poker Player, I let people know my move. LOL"

"I am also inconsistent, since I was just blogging about restraining my buy"

Hey, Rolf and SMOL, see I preempt your poking first. See how I see you up up and even before I pen anything down, I thought about your reactions.

OK, enough bullshit.

While the STI is showing plenty of resilience, Yangzijiang is falling.

Plenty can go wrong with YZJ.

It can suffer a double whammy, HTM turn sour and the lower Margin of shipbuilding is already playing out. If you google HTM or more macro... there is plenty of articles on the bad debts of China and how YZJ will have to write down it HTM

First of all, let me say I just bought at half of what I would usually buy, so that I can reinforced it 60 cents. I look at YZJ by the business rather than numbers.

That it is a alpha shipbuilder is not in question, of course the reason why it is alpha has also got to do with its strong balance sheet which is helped by HTM. You can't take that away for better or worse. While they have been reducing their HTM, this latest quarter show an increase in HTM assets and more "government-linked" projects. This is my story:

Government is twisting YZJ's arm in the restructuring of shipping sector. The bad debts restructuring of yards, should be transfer to its new investing company in which it had an 11% stake. It is for the private sector to share the burden, but some sweeteners are also given, such as the first building orders from SOE.

The risk of this company going bad is not low.

So what is the meat to invest? YZJ is going up the technology value chain. I read shipping news at least weekly, way before LNG and gas carriers are the "in" thing, they are already claiming their ambitions in this sector, the same with large containership, etc. In short, they read the industry very well, also restricting that rig building to only 1. (Now laid up in Tai Chang yard, might not be delivered in the end.)

Second, they have been shareholder friendly. Dividends at 30% payout since IPO, I expect dividends to be 3-3.5 cents this year. But it is still a decent 4% as I wait for the upturn. There is also no fund raising yet.

Third, the shipbuilding cycle is at its bottom. No one knows how long more it will last. But it has been around for more than 5 years, and when the 3 Korean Giants who are all market leaders bleed big time, and that China has only 70 yards in the white list, and according to Yuan going to be only another 35 going forward, we know the sector is in doldrums. YZJ have at least 1.5 years without any orders to continue to keep its yard busy. Cancellations risk not accounted here.

Fourth, reward is reasonable high.

Fifth, Ren's leadership. His son is already COE, although he is still clearly in charge. Succession planning anyone? He is candid, not shy from admitting his mistakes. With government's arm-twisting to invest in RongSheng, he managed to say "Not yet", and "No" to more rig orders. Everyone can say HTM will blow, it might, just like DBS also got a big slap in the face. I will not underestimate his ability, there is already impairment done for HTM, my take is when his HTM blows up, China Banks will also blow... It is not going to be nice wherever you are...

Conclusion:

YZJ is not your bao jia durian. Its valuation is attractive for a reason. It is risky.

It is a risk I will take.