It has been quite a while since I last wrote. These past months, I have been busy engaging in US stocks as the liquidity and interests over in Wall Street have picked up significantly since the successful re-election of Obama.
I have been noticing keen interests in Singapore stocks since the start of 2013 and I have been accumulating stocks which I deem, would be able to ride the cycle.
Top of my list would be the S-chips which offer attractive risk-returns ratio.
I have been accumulating Yangzijiang since their offshore jackup rig announcement. I like the fact that they are working closely with the Qataris who are one of the most careful businessmen around. With Yangzijiang financial strength, I remain optimistic that the Company would ride out the shipping trough and would benefit from the spillover effects from the offshore cycle.
JES International has also been on my list as I notice that the Company has acquired some smallish offshore contracts. The margins to these contracts (last I checked with my offshore friends) are marginable (4-6%). I believe this is a transition period for the Company as they are shifting into the offshore sector.
If you notice this process took more than a year. I believe the Company will stand to benefit from this extended cycle.
The shift in offshore towards PRC yards is very real. Even Keppel and Sembmarine have felt the threat.
Building an oil rig is not rocket science. You can get the raw materials easily as long as you pay the market price. The tough part is the execution team. As long as the team is built up, 85% of the tough questions are solved.
There is a serious shortage of jackup rigs. The buildup over the past 10 years has not been enough to replace the rigs built in the 60s.
SG yards have the first bite in 2005-2010. PRC yards will have the second bite of the cherry now.
I bought Yangzijiang yesterday after researching it for quite some time
Just my thoughts:
1) Earnings and NP will probably go down significantly 2013 2H onwards, as their orderbook dwindle and the higher margin orders get fulfilled and the lower margin ones are left.
2) No one knows when the cycle will turn, if the downcycle last more than 2 years, YZJ will not be at this price
3) Execution risks of the rolling out of the 10,000 TEUs container ships. If sucessful, it will become a positive
4) "Others" segment of YZJ business still at infant stage like the offshore and prop devt, so there also exists also execution risks
5) Capex should continue to rise as they diversify to grow their "others" segment of their business (include stell fabrication and ship scrapping)
1) Excellent management:
a)Top 5 shipyards in CHina (PRC wanted the sector to consolidate with the top 10 shipyards taking 70% of the market share compare to 50% now) YZJ is in a strong position
b)COnservative and prudent managment, initiate cancellation of building orders but managed to find new buyers for the all except 2 of the ships. Changbo shipyard left idle to save costs.
2) Leader position, most profitable shipyard in china, beating even stated owned CSIC's subsidiary, China Shipbuilding Industry Company Limited, first in china to win orders to build 10,000 TEUs ship
3) Barring debt crisis in china, the HTM securities should continue to provide the buffer and cushion for the coming years
4)Valuation not actually demanding at 1.1 p/b and sub 7 PE(will worsen going forward) and with steady record of dividends and reasonable payout ratio (around 30%), I expect dividend to fall and payout ratio to increase but I think YZJ will continue to give decent dividends over the next 2 years.
5) I won't worry too much about the warrants, if YZJ can reach 1.5 for warrants to be exercised, I will be a happy shareholder even if it lead to dilution of dividends and earnings. If there is no dilution, then warrants are not in the picture anyway
personally, to invest in YZJ,
- have the pockets to accumulate as long as the "others" segment do not become black holes that burn cash and the 10,000 Teus ships dun screw up, YZJ will be in a very strong position to ride the tide up when the time comes.
-Have the stomach for volality
I find YZJ fulfilled the saying of "paying a fair price for a great business"
Thanks MacGyver... still weighting the pros and cons until you and some other forummers take the plunge and I finally decided:" hey lets go..."