Tuesday, August 21, 2018

Bought Yangzijiang Shipbuilding

Yangzijiang is a shipbuilder, which builds dry bulk and container ships.

Why am I buying?

The shipping industry has come through a massive 6-year downturn.  Dry Bulk is recovering - the main supply-side metric is the order book: estimated at 10% of the fleet 1, 2.  Containers have stopped collapsing: there may be a recovery in the smaller class ships (Post Panamax and below), while large container ships (New Panamax & UCLV) still look pressured by new supply - however - in the long term supply will be managed by the 3 major shipping alliances3.


Yangzijiang has been profitable through the downturn:
              (source: Morningstar)

Since building a ship is a long term endeavour, earnings numbers contain many assumptions (eg: currencies, steel costs).  I do not know enough to look at this.  But write offs have already been made:
  • Yangzijiang made Rmb1.2bn worth of provisions in 4Q17 in view of the weaker USD and rising steel cost then. We note that ~70 vessels (out of total of 123 vessels) on its orderbook were provided for while the remaining 40+ vessels (largely the large containerships and small bulkers) were expected to be profitable when stress-tested at those levels.
         (Source: DBS Research report, May 2018)

Lastly, the stock is cheap.  Its trading just above its net cash is of 91c.  Most of its cash is short-duration 4 Hold-to-Maturity (HTM) investments.

Why is the stock trading so low?  Probably because of the feared effect of the trade war on the shipping industry.

Bought 8000 shares @ SGD 1.08.  Thats a 1% position.  I'd be willing to go up to 2% for an S-chip.


Edit: 12th Sep 2018: Bought another 7000 shares at $1.11 on 31st Aug.

2 Up to 15% is reasonable. 
3 May 2018 Value Investors Edge article: Subscription Required.
4 1-3 years.

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