|Yangzijiang Shipbuilding is in the preliminary phase of conducting a strategic review of its debt investment portfolio to allow the Group to focus solely on the expansion of its core shipbuilding business.|
Excerpts from CGS-CIMB report
Analyst: LIM Siew Khee
|Strategic review of debt investment, more disclosure|
● YJZ changed its reporting format slightly to reflect segmental EBIT for shipbuilding/debt investment. It also said in the 2Q21 earnings announcement that it is in the preliminarily phase of conducting a strategic review of its debt investment portfolio to allow the Group to focus solely on the expansion of its core shipbuilding business.
● Instead of reporting annually previously, YZJ stepped up in disclosing the credit loss allowance for debt investments in 1H21.
NPL (non-performing loan) for debt investments stood at 15.6%, improved from 17.2% as at 31 Dec 21.
Total credit loss allowance balance remained steady hoh at 10% as of 30 Jun 21. YZJ reversed a total of Rmb166m of allowance (- 0.6%) in 1H21 vs. average allowance of 0.8% in FY21.
● We think that if the division is spun off or being reduced in the overall investment size to Rmb10bn or less, it would be a major catalyst as it alleviates investors’ concerns over shading banking.
However, one has to also stomach the potential loss of recurring income of interest from debt investment (c.50% of its gross profit).
2Q21 debt investments balance grew to Rmb16.6bn (1Q21: Rmb14.8bn), with interest income down 14% qoq to Rmb417m.
Outcome of strategic review of debt investment portfolio is a major catalyst.
Full report here.