Yangzijiang Shipbuilding (Holdings) Ltd & US treasury yield curves

I have been reading the blog posts from fellow bloggers and my own older posts. Yeah, the fingers are itching for some actions (buying some stocks)… be it for capital gains or dividend income.

Now may not exactly be the right time.

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Actually, I am not really good at being a ‘hybrid’ investors. I do know some investors who do value investing and stock trading (momentum investing) at the same time. Well, some do more of the first than the second (and vice versa).

I tend to feel that I lose my directions when I engage in the different modes of investing… after a while, I don’t really know my principles anymore and don’t really know what to believe (or what am I really doing — investing or gambling).

Yangzijiang Shipbuilding (Holdings) Ltd

Yangzhijiang came into my radar. It has a dividend yield of 4.79% in 2016.

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Given the collapse of the shipbuilding industry in China and the consolidations of various shipyards to  (with many smaller less competitive shipyard companies disappearing) – it is likely that Yangzhijiang will still remain standing in the long run. It is after all,  the largest and most cost-efficient private shipbuilder in China.

With more than 3,000 shipbuilding enterprises, mostly speculative yards, counted at the start of 2010, that number has drastically dwindled to only around 300 today, and only a little more than 100 yards have active day-to-day operations. (read here)

Although there are many things I do like about YZJ:

  • Strong balance sheet;
  • Management willing to cut loss quickly on losing enterprises and lay-off workers;
  • Managed to get major government contracts (in contrast to other smaller shipyards);
  • Consistent & high dividend payouts, etc

Yangzijiang shipbuilding lays off 6000 men plans 2000 more (read here)

I have my reservations over a few points:

  • Cyclical stock or business. They don’t tend to make good buy and hold stocks in the long run. Hard to predict their earnings.
  • The payout ratio has increased rapidly in recent months / year (see below);
  • And that is on top of the fact that revenue, operating income, earning per share all show a downtrend in recent years (not surprising given the slow collapse of the shipbuilding industry in China). Well if you search deeper, ROE, ROIC, ROA all downtrend in recent years.
  • Free Cash Flow is erratic in recent years.

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I came across an interview from Glenn Greenberg of Brave Warrior (formerly Chieftain Capital).

I’ve always like his general approach, specifically the following two points:

  • Focus on the quality businesses (he lived through the stock market crash of 1987, where the market tumbled over 20% in one day, and he wanted to ensure that if that ever happened again, he would feel comfortable with the businesses he owned)
  • Position Sizing: If it’s not worth putting 5% of your portfolio in the stock, then it’s probably either too risky, outside your circle of competence, or doesn’t have enough upside.

I feel that YZJ is a quality business, however, at the moment, I need to read more about it.

Being a big company does not make it recession-proof.

And not sure if I am willing to put 5% of my portfolio in it… given the market situation now. Frankly, I am not really sure how YZJ stock will perform in the event of a

Frankly, I am not really sure how YZJ (as a stock) will perform in the event of a market crash. I reckon that would be like a perfect storm (together with the collapse of the shipbuilding industry, O&G industry slump and Trump protectionism.

The sudden increase in payout ratio is worth noting (I hope management is not trying too hard to keep up ‘appearances’)….and any sudden drop in dividend payout will have an over-reaction to the stock price (esp. from investors who view this as a dividend yield stock).

 

US treasury yield curves

Well, I was reading my old posts, I recalled a post done in May 2016 (read here). There was the mention of US Treasury yield curves by Mr Tng:” A sign that a correction is coming is that the US treasury yield curve is close to as flat as what you see before previous crises.”

I recall that there was a market correction in Jan 2016 (in S&P 5oo & STI).

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So I will use that period as a benchmark and compare today’s US treasury yield curve to the curve then. See below.

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However, can’t really see any difference in steepness of the two curves. Well, am not really a big picture or top down kind of investor. Guess I just wasted 10 minutes. :p

“The way you lose money in the stock market is to start off with an economic picture. I also spend fifteen minutes a year on where the stock market is going.” and “If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.” Peter Lynch

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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room flat.
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