My thoughts and take on YZJ shipbuilding recent developments
Warning: Heavily opinionated article
Now! The reason why I am writing this article is to share my thoughts on the recent developments on the stock: YZJ shipbuilding in hopes to spur some constructive discussions.
This is by no means an article that is based on 100% facts and neither should this be seen as a recommendation to buy or sell the stock itself. Whatever that I’ve written is purely based on my own personal opinion.
You have been warned 😊
Possible Fraud and Corruption?
Let me first say that I do not condone any unethical behavior BUT I do understand that it cannot be 100% eliminated.
I will not be surprised if YZJ does engage in such unethical behavior - be it grease payments or bribery – and here’s why.
while China has been cracking down on corruption, it takes time for the system and process to be decently free from such behaviors
the industry has experienced severe consolidation and deterioration over the years
because of that, the industry has seen heavy involvement with the local authorities in term of subsidies and support
NOW, my basis is purely speculative and based on my stereotypical experience with similar companies. But you get the point, don’t you?
Let’s just entertain the idea that it is true, okay… what’s the worse that could happen?
They could get fined and business will be severely affected in the next few years due to bad branding or legal constraints.
Worse come to worse, they would have to shut down part of their businesses.
I am not too concerned about that because:
the net gearing ratio of YZJ is extremely low: 3.6%
the company have a very healthy balance sheet
stock is currently still trading below their fair value
This means that the company will have a very high survival chance of overcoming this crisis and continuing its operations.
Furthermore, based on their historical performances and track record, I am confident that YZJ will be able to recover from such a crisis.
Even if they were to liquidate their business or be acquired by other parties, personally, I would not foresee a huge loss on my position (I went in at 88cents) as the margin of safety for this counter is pretty comforting. (refer to my analysis on the counter here)
Possible missing chairman?
As much as I hate the idea of treating human talent as one that is “replaceable”, the idea is there for Ren Yuanlin.
While Ren Yuanlin has been rumored to be “missing” for over two months, I don’t quite understand how his absence will severely affect the operations of YZJ shipbuilding.
Yes, he is without question an important and valued asset to the management but makes no mistake, the one this is currently running the show is his son, Ren LeTian.
Surely, if the worst is to happen, I am confident that the company has in place proper succession planning in place to ensure sustainable growth and operation of the company itself.
This will definitely affect YZJ in the short run, to what extent – god knows. BUT, in the long run, I do not foresee a problem with the current management.
Possible accounts manipulation?
While it is not impossible for YZJ to “cook” its books, I find it hard to believe that they can pull it off successfully and smoothly with so much attention on the counter itself.
Being a “blue-chip” stock that is incorporated in the Straits Times Index and ranked number 1 in China and number 5 in the world, there is too much “heat” and attention from the investing community for them to be able to do something that extreme – NOT saying that it is impossible.
If they really did “cook” their books, hats off to whoever that pulled it off.
I will gladly accept the loss from this investment and cut off my investments in this company.
Only time will tell.
Overall, I will still remain invested
All that being said, I am confident in my analysis and I have faith in both the company as well as the management.
Sure, the company’s performance and share price may suffer in the short run, but I am confident that things will change for the better in the future just as it had in the past
Will I invest more?
Maybe, we’ll have to reassess the situation when there is more information, probably after they release their annual report for the financial year 2019.
This will be the risk that I will be more than willing to take on.
So, what do you think about this counter? What will you do if you were invested? Let me know in the comments section below!
This article is meant to be the opinion of the author and is for information purposes only. This article should not be seen as a financial advice
Author has vested interest in the counter since 09 July 2018.
This advertisement has not been reviewed by the Monetary Authority of Singapore.