Yangzijiang Shipbuilding Holdings Limited(SGX: BS6), a listed company on the Singapore stock exchange and a component of the Straits Times Index, announced to spin off and list its investment business segment on the stock exchange on March 25, 2022. Find out more on the best stocks to invest in Singapore
The decision comes following the company’s restructuring exercise to maximize the 2 businesses’ efficiency and profit for the benefit of shareholders.
The new spin-off entity “Yiangzijiang Financial Holding Pte Limited” will carry out investment and debt investment businesses. It will explore opportunities, e.g., public markets, private debt, mezzanine financing, private equity, and special situations.
The new company will create a recurring income model by developing fund and wealth management businesses. The financial holding group will focus on emerging markets in the Asian-Pacific region and worldwide developed markets.
About Yangzijiang
Founded in 1956 and listed on the Singapore Stock Exchange in 2007, Yangzijiang is one of China’s largest private shipbuilding companies. The company operates 3 segments: shipbuilding, investment business(to be spun off), and trading.
Like other vessel-owning companies, the shipbuilding holdings group trades vessels like medium to large containerships and bulky and LNG carriers. The clientele covers North America, Europe, and other parts of the world.
Share Prices and Dividends
The graph information comes from SGinvestors.io.
The current dividend is S$0.045 per share for May 28, 22, and the dividend yield is 2.8%.
What do Analysts Say?
Yangzijiang’s income: The company’s revenue for 2021 has recovered from the pandemic and grew to S$3,494 million from the low of S$2,966 million in 2020 by 17.80%. But the cost of goods sold has been up by 28.87%: a more than 10% increase, and it leads to a negative 10.14% growth in gross income as such. If the depreciation and amortization expenses are excluded, the COGS growth has exceeded 30.26%.
The cost of goods sold growth has eroded the sales growth. The main hurdle is worldwide inflation, and economists predict the trend may persist in 2022. If Yangzijiang cannot contain the costs in the future, the increases in raw material prices may impact income.
The company’s pretax income has grown by 53.08% from 2020. But excluded non-operating income, EBIT has increased less than 3% from last year. The earnings before interest and tax have negative growth of over 20%.
Finally, the company has endured a 74.22% increase in gross interest expenses. If Yangzijiang needs to finance projects, especially in the overseas market, the cost will likely impact the bottom line.
Yangzijiang’s asset quality: The company can insulate itself better from higher interest expenses and have further room for project financing due to its gearing ratio of 30.10%.
Besides, the company has an abundant growth of liquid assets by 55.41% more than 2020 and has a reasonable reserve for smooth operations in the future.
In 2021, the account receivables increased by 130% to S$1,714 million from S$742 million in the previous year. The consequence is that the company may face difficulty collecting revenue from clients.
The past year also sees apparent changes in the liabilities. The account payables have increased from S$271 million to S$593 million, a 119.27% increase. Yangzijiang can use its abundant reserve to cope with the account payables.
The changes in deferred taxes have also seen an increase from S$149 million to S$244 million, a 63.76% growth. Although the liabilities increased by 41% in 2021, it is still on the low side for a company with a low debt ratio and sufficient cash reserve.
Yangzijiang’s cash flows: The company has a strong cash position despite disruptions from the pandemic and has maintained a consistent and solid dividend track record for the past 5 years. We believe it will do so in the future. Besides, Yangzijiang has spent more than 100% on capital expenditures than 2020 and proves it is confident in the shipbuilding business.
The company has consistently cleared out inventory for 2020 and 2021 and exceeded the previous 2018 and 2019 by a S$16 million deficit. It may raise concerns that Yangzijiang may lag on delivery time and replenish end-of-products on schedule.
Excluding non-operating gains from forex operations, the company has funds from operations approximately the same as in 2020 and even worse than in 2019 and 2018. The COGS and other expense inflation from raw materials may reduce the funds.
Due to its low debt level, the company still has ample room for direct access to operation and project financing.
Account receivables saw an almost 300% growth in 2021 than in other periods. The company may reduce its cash flows and incur bad debt risks if the amount keeps accumulating.
Yangzijiang’s spin-off: The company will spin off and list its investment segment – Yangzijiang Financial Holdings Pte Limited, from the corporation’s shipbuilding and related activities on the Singapore exchange by the 3rd quarter of 2022. The new investment segment consists of existing China investment management and debt investment business and will seek to add public markets, public debt, and other capital market businesses.
The to-be-listed company will expand into fund and wealth management businesses and into different regions and developed markets to increase steady income for shareholders.
Yangzijiang states the carve-out will create more value for existing shareholders as it predicts the net asset value per share will reduce by 56% to RMB4.0586 from RMB9.1562. However, the earnings per share will decrease by 47.44% to RMB0.5035 from RMB0.9579.
Upon a successful spin-off, the stock will see an almost 10% increase in value.
You will see the market cap of Yangzijiang will fall by two-thirds after the restructuring. Investors should keep an eye on what assets like receivables will be a part of the transfer into the new company or what will remain in their place for a clear valuation picture of the 2 companies.
Is Yangzijiang a Good Stock to Buy?
Yangzijiang is a growing company with an abundant cash stockpile without short-term micro-financing for operating needs and dividend payments. The corporation may face earning pressure as it seeks to contain the rising raw material costs, and a volatile investment environment and rising interest rates may reduce its overall income.
A deteriorating business climate may increase the clients’ default due to a high receivable pileup. The on-time inventory fill-up is essential for profits buildup due to significant reduction over the past 2 years.
The investment spin-off could help reflect more value to investors but reduce the group’s weight by two-thirds. However, the concern about its status in the index remains to be seen.
If Yangzijiang can improve its bottom line by paying attention to the above, it may have further room for upping the value chain.
Final Thoughts
Jianzijiang shipbuilding holdings limited is a growing private company with a strong balance sheet and cash position to expand businesses. It has low price-to-earnings and price-to-book ratios. However, it may cope with market cap and cost issues to further improve its earning performance.
Key takeaways:
- Yangzijiang is a growing private company in China.
- It has low P/E of 7.84, P/B of 0.85, and a gearing ratio of 31%.
- Its spin-off announcement may release more value to the market.
- The company has room to improve cost and earnings issues to increase the company value further.
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