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<TABLE border=0 cellSpacing=0 cellPadding=0 width=452><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published June 18, 2010
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Yangzijiang shareholders need more convincing
By LYNETTE KHOO
TWICE in a row, Yangzijiang Shipbuilding has ploughed money into businesses completely unrelated to its core business. First, it was a 60 million yuan (S$12.2 million) investment in a Chinese venture capital (VC) fund for a 20 per cent stake last week. Next, it has taken a 51 per cent equity stake in a microfinance company for 153 million yuan.
While the invested sums are said to be immaterial to the group's financials, one wonders why the shipbuilding company has embarked on such ventures and their accompanying risks. Shareholders seeking dividend yield may also wonder why the company is not raising the payout instead if it has so much spare cash.
Barely one week after its investment in VC fund Jiangsu Huagong Venture Capital Co (JHVCCO), Yangzijiang announced yesterday that it is subscribing for a 51 per cent stake in micro-lender Jiangsu Runyuan Rural Microfinance Co for 153 million yuan. The latest investment represents about 2.4 per cent of the group's audited net tangible assets as at Dec 31, 2009.
Yangzijiang had earlier in July last year paid 100 million yuan for a 20 per cent stake in another VC fund Everbright Venture Capital Jiangyin Co (EVCJCO).
Explaining the rationale yesterday, Yangzijiang said that the investment in micro-lender Runyuan is 'part of the group's asset management activities'. Together with earlier investments in two VC funds, they 'are expected to enhance the return of the group's assets and shareholders' value'.
The latest investments are not expected to have a significant impact on the earnings per share and net tangible assets per share of the group for the current year. But they are not small. Together with the investment last year, they added up to a total of 313 million yuan, or S$63.7 million.
Hence, there needs to be more clarity on these investment decisions and the risks involved, given the long gestation period of venture capital funds and the slim chance of returns in the near term.
The latest investment in Runyuan will also make the latter a subsidiary of Yangzijiang. It is hence baffling why a shipbuilding company should venture into rural-lending, a relatively low-margin and low-return business.
Perhaps, the group should provide a clearer picture on the track record of such ventures and the kind of returns that they have been churning out.
In particular, its investment in Runyuan requires greater justification since it is a newly incorporated company and it is unclear if it has a track record to speak of. Runyuan is managed by the son of Yangzijiang's chairman, making the investment an interested party transaction.
Ren Letian has subscribed for 15 per cent equity stake in Runyuan and is acting as managing director of the company. Given the connection between Mr Ren and Yangzijiang's chairman Ren Yuanlin, more is needed to convince shareholders on the merits of this investment choice on a commercial basis.
Of course, another way to look at these developments is that such investments may suggest good corporate citizenry - the two VC funds provide seed money to budding enterprises in their respective provinces and the micro-lender helps the cash-strapped that no banks would lend to. And while doing good, there is also a chance of reaping some long-term financial rewards from these investments.
But this aside, the group needs to spell out its investment objectives clearly to explain how such investments will enhance the return of the group's assets and of shareholders' value.
Being the most profitable S-chip with a strong cash hoard of 5.12 billion yuan as at March 31, Yangzijiang obviously has lots of gunpowder left to deploy. It is among the few S-chips that issue dividends, having raised its final dividend per share from 2.8 cents in fiscal 2008 to 3.5 cents in 2009.
Issuing dividends more frequently (it did not issue dividends in the first quarter) could perhaps instill greater confidence in the stock than putting money into ventures that pose unknown risks with no certainty of returns.
As it seems, Yangzijiang needs to do more to convince shareholders on how it is making good of its cash through its entry into seed-funding and microfinance activities.<SCRIPT language=javascript> <!-- // Check for Mac. var strAgent; var blnMac; strAgent = navigator.userAgent; strAgent.indexOf('Mac') > 0 ? blnMac = true:blnMac = false; if (blnMac == true) { document.write('
'); } //--> </SCRIPT>
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</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Yangzijiang shareholders need more convincing
By LYNETTE KHOO
TWICE in a row, Yangzijiang Shipbuilding has ploughed money into businesses completely unrelated to its core business. First, it was a 60 million yuan (S$12.2 million) investment in a Chinese venture capital (VC) fund for a 20 per cent stake last week. Next, it has taken a 51 per cent equity stake in a microfinance company for 153 million yuan.
While the invested sums are said to be immaterial to the group's financials, one wonders why the shipbuilding company has embarked on such ventures and their accompanying risks. Shareholders seeking dividend yield may also wonder why the company is not raising the payout instead if it has so much spare cash.
Barely one week after its investment in VC fund Jiangsu Huagong Venture Capital Co (JHVCCO), Yangzijiang announced yesterday that it is subscribing for a 51 per cent stake in micro-lender Jiangsu Runyuan Rural Microfinance Co for 153 million yuan. The latest investment represents about 2.4 per cent of the group's audited net tangible assets as at Dec 31, 2009.
Yangzijiang had earlier in July last year paid 100 million yuan for a 20 per cent stake in another VC fund Everbright Venture Capital Jiangyin Co (EVCJCO).
Explaining the rationale yesterday, Yangzijiang said that the investment in micro-lender Runyuan is 'part of the group's asset management activities'. Together with earlier investments in two VC funds, they 'are expected to enhance the return of the group's assets and shareholders' value'.
The latest investments are not expected to have a significant impact on the earnings per share and net tangible assets per share of the group for the current year. But they are not small. Together with the investment last year, they added up to a total of 313 million yuan, or S$63.7 million.
Hence, there needs to be more clarity on these investment decisions and the risks involved, given the long gestation period of venture capital funds and the slim chance of returns in the near term.
The latest investment in Runyuan will also make the latter a subsidiary of Yangzijiang. It is hence baffling why a shipbuilding company should venture into rural-lending, a relatively low-margin and low-return business.
Perhaps, the group should provide a clearer picture on the track record of such ventures and the kind of returns that they have been churning out.
In particular, its investment in Runyuan requires greater justification since it is a newly incorporated company and it is unclear if it has a track record to speak of. Runyuan is managed by the son of Yangzijiang's chairman, making the investment an interested party transaction.
Ren Letian has subscribed for 15 per cent equity stake in Runyuan and is acting as managing director of the company. Given the connection between Mr Ren and Yangzijiang's chairman Ren Yuanlin, more is needed to convince shareholders on the merits of this investment choice on a commercial basis.
Of course, another way to look at these developments is that such investments may suggest good corporate citizenry - the two VC funds provide seed money to budding enterprises in their respective provinces and the micro-lender helps the cash-strapped that no banks would lend to. And while doing good, there is also a chance of reaping some long-term financial rewards from these investments.
But this aside, the group needs to spell out its investment objectives clearly to explain how such investments will enhance the return of the group's assets and of shareholders' value.
Being the most profitable S-chip with a strong cash hoard of 5.12 billion yuan as at March 31, Yangzijiang obviously has lots of gunpowder left to deploy. It is among the few S-chips that issue dividends, having raised its final dividend per share from 2.8 cents in fiscal 2008 to 3.5 cents in 2009.
Issuing dividends more frequently (it did not issue dividends in the first quarter) could perhaps instill greater confidence in the stock than putting money into ventures that pose unknown risks with no certainty of returns.
As it seems, Yangzijiang needs to do more to convince shareholders on how it is making good of its cash through its entry into seed-funding and microfinance activities.<SCRIPT language=javascript> <!-- // Check for Mac. var strAgent; var blnMac; strAgent = navigator.userAgent; strAgent.indexOf('Mac') > 0 ? blnMac = true:blnMac = false; if (blnMac == true) { document.write('
'); } //--> </SCRIPT>
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