The warrants issue is especially interesting to me. I presume the management could convince Citi that the business will rake in much stronger profits within the next 3 years, so the stock price has a strong chance of exceeding $1.50.
Assuming this scenario pans out, if I buy YZJ today at 93, I will collect a 5.3% dividend yield (assuming 5 cent a share) each year + about 16% capital gain a year on average.
It's very attractive. Again, I presume that the stock price will exceed $1.50 in 3 years. How, I don't hv a clue! But this is the sort of situation where you read the best signals and take your bet.
I am also an investor in YZJ. The shipbuilding industry is bottoming out, and is expected to recover from now onwards. YZJ is starting to go into the lucrative offshore rig business. There is a learning curve, and execution is key otherwise there might be severe cost overruns, but I feel YZJ will learn it fast. There may be short term constraint on cash flows since YZJ contracts are backloaded, but that is a way for them to penetrate a new competitive market.
Overall, this is a long term play. As long as YZJ is paying reasonable dividend, I am happy to stay with it. The coming AGM on 26 Apr may provide more visiblity on their game plan. Maybe someone can provide an update after the AGM.
I find the Q1 results satisfactory, with a fair mix of goods and bad news.
1) That the revenue, GP and NP will be down is already a foregone conclusion.
2) Another 2 shipbuilding contracts stopped.
3) Still too heavily relying on HTM to cushion the fall in profits.
1) contract wins in Q1 (0.6 billion) exceed the whole of 2012
2) Margin still relative stable
3) "Others" segment contributing to GP, whereas in the 2012 AR, Others segment is having a loss of 89 million RMB.
Not sure how market view the report though, I view it midly positive...
If they can keep up with the contract wins, then perhaps we should at least see a bottom soon in terms of the fall in revenue, gp and np. Management does not expect the shipbuilding sector to recover in 2013. I didn't expect it too, i bought preparing myself for the winter to last till 2014, if it ends early, bonus...
YZJ has fallen some 10% since I last write about it.
I am waiting to accumulate further as it is very near my price for accumulation. I am not able to predict it short term price movement.
Was reading up on YZJ's customers and I realised:
With the exception of 1, the rest of the shipping companies are in a strong financial position and hence is able to take advantage of the current low ship building price and afford to be counter-shipping cycles.
PD still has LOA to build 10 10000 TEUs, with fiancing assured with chinese banks.
Rickermers has recently issue a bond and has state that they intend to expand/ replace their fleet from 2013 to 2014.
Seaspan still has a option of 14 10000 TEUs ship.
Carisbrook bulk carriers in recent years are almost soley build by YZJ (Show the confidence of carisbroook)
From reading these customers AR, they see the future in green and large ships, both capabilities YZJ is trying to build years ago but acquiring the New YZJ yard (foresight).
NOw the bad news:
Rickermers see no recover till 2014 at least, (But YZJ has orders to last them through 2014). When compared to the korea yards like samsung or hyundai heavy industries, YZJ customers base is really small and order books like that of mickey mouse, hence the reason why PRC is trying to consolidate the shipping building industry for them to gain size to compete. From what I read, its seems that the process is indeed happening, banks and funds in CHina are linking out with other shipping companies like the GCI fund that has 5 billion earmarked for ship building contracts which seaspan has a first refusal right, and the offer of 1 billion financing to PD.
Looking into the future, we need to track closely rickermers purchases, if orders for containers ships of around 5000 TEUs and 10000 Teus go to korea or worse, other china shipyards, it could spell trouble and loss of competitive strength. I believe many shipping companies are looking at the delivery of its 10000TEUS container ships, and if successful, there might be more business so as to penetrate further into china market (favour-returning).
I am not sure of its bottom and the inherent risk of operating in china is very real, but I feel that given this is already the fifth year into the shipping slump, and that YZJ has strong financial there will see it through for the next 2 years, i took a calculated risk.