YZJ dives a further 17% after trading resumes

Singapore

THE selloff on Yangzijiang Shipbuilding stock showed little signs of easing on Thursday following the lifting of a trading halt that was instituted on Aug 8 .

Shares in China's largest non-state owned shipbuilder plunged 18 cents, or 17.3 per cent, to S$0.86, on hefty turnover of 129.3 million units - taking the stock to the top of the most actives list on the Singapore bourse.

The stock's fall took it to a 2.5 year low, despite an active share buyback by Yangzijiang which saw two million shares bought back at between S$0.85 and S$0.87.

Yangzijiang's shares dived by as much as 20 per cent on Aug 8 before a trading halt was called following a query from the Singapore Exchange (SGX).

The trigger for the panic selling was said to have stemmed from a report by global shipping news service TradeWinds two weeks ago that Liu Jianguo, described as a "veteran political patron of the shipbuilding industry", was being probed for "serious disciplinary violations".

Tradewinds said this came from a statement in June by Beijing's Central Commission for Discipline Inspection, the Communist Party of China's own powerful anti-graft body.

Mr Liu's career included a long period of service in the key shipbuilding region of Jiangsu province, where Yangzijiang's production areas are located. He is also the chairman of a charity foundation set up by Yangzijiang executive chairman Ren Yuanlin.

In response to the SGX query, Yangzijiang said in a filing on Wednesday that Mr Ren, who is also the company's founder and controlling shareholder, had taken leave to focus on "assisting in a confidential investigation carried out by certain PRC governmental authorities".

It added that up until Aug 9, Mr Ren had continued to have a decision-making role in major company matters, including recently approving the group's unaudited second-quarter financial results that were released over a week ago.

A trader told The Business Times since last Thursday's slide, shares in Yangzijiang may have been oversold but noted that investors were not biting at the opportunity to "bottom fish" the stock.

"Investors could be worried that other news that is material has yet to be released," one trader said.

Citi Research analysts Kwok Wei Chang and Patrick Yau wrote: "Given that the company has addressed the uncertainty surrounding chairman Ren's whereabouts, we think that the stock price correction has been overdone.

"Indeed, the group's operations and business are expected to carry on as usual, including both its shipbuilding and financing segments, under the leadership of CEO Ren Letian in the interim."

Citi is of the view that the price drop represents a good opportunity to add positions on the stock.

In a note to clients, KGI Securities said: "Although Mr Ren is not the subject of the investigations and is simply helping with the investigations, his absence is still expected to be an overhang on share price."

KGI added that while Yangzijiang has said it is business as usual, the Chinese media have remained sceptical, particularly, about its lending business.

"Yangzijiang earns between 10-15 per cent yields from its lending business, which has ballooned to a total amount of 18.8 billion yuan (S$3.7 billion) as at end June 2019, making up 42 per cent of its total assets and 40 per cent of net profit," KGI wrote.

On Aug 5, Yangzijiang reported that second-quarter net profit fell 6 per cent to 936 million yuan (S$186 million), as rising raw material and labour costs cut gross profit margin for the shipbuilding business to 18 per cent, from 21 per cent previously.