Yangzijiang weathers shipbuilding slowdown, amasses $1.57b cash pile

In addition to$2.69b HTM assets.

Having weathered the recent shipbuilding slowdown well, Yangzijiang Shipbuilding (YZJ) has amassed a cash pile of RMB7.6b, in addition to its held-to-maturity (HTM) assets of RMB13b as at 2Q14. At the same time, the group also has borrowings of about RMB11.4b.

According to Maybank Kim Eng, a significant portion of Yangzijiang’s held-to-maturity assets are entrusted loans, in which an agent bank (trustee) arranges a loan between two commercial enterprises. In addition to allowing companies with idle funds to earn higher rates of interest, it may also allow stronger borrowers to borrow from banks at lower rates and lend out to weaker companies at higher rates, thereby pocketing a spread. 

Looking ahead, Maybank expects YZJ to pare its RMB13b HTM assets down to about RMB12b by the end of this year. It may take some time before the group is able to unwind most of its HTM assets, and we value them on 0.55x book, at a discount to Chinese banks which are trading at an average of 0.74x P/B. We believe a lower multiple is justified given YZJ’s relatively short track record in the financing business and its likely less developed system of credit control compared to Chinese banks.