Yangzijiang Shipbuilding Holdings (SGX: BS6) is a shipbuilder that has been diversifying away from the Shipbuilding business since the Global Financial Crisis of 2008-09; the company now has a sizeable Investment business (comprising of interest income from financial assets, held-to-maturity and micro finance businesses) that brought in RMB1.5 billion in revenue in 2013 as compared to revenue of RMB11.1 billion from the Shipbuilding segment.
In fact, from its latest quarterly results, Yangzijiang’s Investment segment had earned more gross profit than its Shipbuilding segment (RMB591 million vs. RMB457 million).
However, a sudden refocus toward building ships (more on that to come shortly) might just happen for Yangzijiang with the company receiving orders to build the largest bulk carriers in its history.
The company announced just yesterday that it has secured an order for four 260,000DWT (deadweight tonnage) very large ore carriers from an Australian customer. The contract is a ‘first’ for Yangzijiang on a number of fronts; it’s not only the first contract of its kind for the company, it’s also the first time the company has reached into Australia.
The contract win has given Yangzijiang more confidence in expanding its international business and to invest more into its research and development ability for shipbuilding in the future.
Besides building ships, Yangzijiang is also involved in high-yield debt investments and some micro financing operations, as mentioned earlier. From its first quarter presentation at the end of April 2014, the company intends to evolve into an integrated marine service provider with five main business segments: 1) Shipbuilding & Offshore; 2) Financial Investments; 3) Shipping logistics & Chartering; 4) Ship demolition & steel fabrication; and finally 5) Property Development.
An abrupt about-turn
However, in Yangzijiang’s announcement regarding the contract win for the very large oil carriers, management declared that they will slowly divest the company’s non-core businesses – such as its Property Development and Financial Investments segments – to focus on its core shipping-related segments.
This comes only less than 2 months after the company had presented Property Development and Financial Investments as two of its “Five main segments”. Yangzijiang had also just acquired Jiangsu Hengyuan Real Estate Development Co. Ltd on 27 Feb 2014 for RMB300 million. Why did the company acquire a property business only to decide to divest such property-related business segments only after 4 months?
I’ve previously discussed some important aspects of management that investors have to look at when assessing the quality of management in a company.
So, here’s some more important food for thought for investors on the topic: Management that flip flops on a previous decision without any logical reasons might not give investors a lot of confidence. It must be noted though, that this is neither a comprehensive look at nor a criticism of Yangzijiang’s management team as they might have other more important attributes that would give them an overall thumbs up – after all, no one is perfect.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.