YANGZIJIANG: In chairman Ren's own words.....

Chairman Ren Yuanlin. NextInsight file photo.Chairman Mr Ren Yuanlin, in his usual humorous and candid manner, gave a comprehensive review on his strategy for Yangzijiang and on the overall shipbuilding industry. Here are our key takeaways, in Mr Ren Yuanlin’s own words (note that any translation errors would be ours):

On shipbuilding orders. “In 1H15, effective contracts in China fell 80% YoY. Yangzijiang was not spared, with few orders before May. Many Chinese yards focused on dry bulk carriers and thus did not perform. The containership space was more vibrant, but orders were lost to Korean and Japanese players who competed hard on prices. In June, we adjusted our marketing/sales strategy and prioritised the orderbook over profit margins and immediately won orders. But Yangzijiang is not a (South) Korean yard, nor a Japanese yard, nor a Chinese state-owned yard. We will not take loss-making orders to keep the yard busy.”

On property development. “Entering this market was a strategic error. Exiting it is our correction. Property prices have rebounded recently, but the long-run prospects are negative. Yangzijiang will take this opportunity to exit the business. Funds will be redirected to the shipbuilding business, but potential income growth from property will be sacrificed.”

On Yangzijiang’s ship chartering business. “This is a supplement, not a main business. Management will not actively expand this segment, and actually looks to dispose assets opportunistically. The concept is that of a “profit reservoir” – buy halfcompleted vessels from distressed yards at scrap-metal prices, complete the vessels and put them in the chartering business for some recurring income before they are eventually sold. In 2Q15, the company sold two such dry bulk carriers to customers.”

On steel prices. “Steel is now cheaper than cabbages. This cannot go on.”

On offshore fabrication. “Progress on the jack-up rig is normal, and on track for year-end scheduled delivery. The customer is from the Middle East, so there are no worries on it taking delivery. Yangzijiang has not given up on the offshore business, but under the current oil price environment and with our own current capabilities, we will not expand this business. We are happy we decided to take only one order when the market was hot – now competitors like Shanghai Waigaoqiao (Free Trade Zone Development Co Ltd) (600648 CH, NR) and COSCO (COS SP, NR) are suffering. We will use clean-energy vessels (liquefied natural gas/liquefied petroleum gas carriers) to replace offshore growth.”

On a dual-listing. “Investment banks have approached us on this topic. The original premise is positive – higher valuations and higher liquidity from dual-listing in Hong Kong or China. However, before we decide to dual-list, we have some considerations: i) a clear use for the cash, which we may not have now, ii) original listing in Singapore was that of a small, old Yangzi yard. We are now a much larger organisation and we may face compliance and regulatory complications, and iii) expected market reception. We will only list at a good price, not for the sake of listing. Just because we have considered dual-listing, does not mean we will take immediate action. For now, we are not moving ahead.”

On held-to-maturity (HTM) assets. “We are no longer lending to property companies, new customers, or small-/medium-enterprises. The lending book will fall, and so will our borrowings. We have been asked to give a special dividend after liquidating the HTM assets. However, we want to maintain our strong financial position. Banks will only lend to people with money. We want to keep those banking lines open.”

On M&As. “They are much less attractive today compared to when we considered them in 1H15. Right now, even if you gave us a yard for free, we will not accept it. There will be reasons why they have gone bankrupt. We aim to maintain our profitability.”

To this Yangzijiang CEO Mr Ren Letian added: “Right now, our yard produces vessels of similar quality to Japanese or (South) Korean builds, but our efficiency levels are still lower. We are targeting productivity growth and improvements not in capacity, but in efficiency.”