Tuesday, 19 July 2011

YANGZIJIANG (Lim&Tan)

S$1.235-YZJL.SI
􀁺 The company has provided the following updates in response to the sharp drop in its share price:

a. there are no current plans to issue convertible bonds;

b. the company has witnessed a diversification of its “customers portfolio away from European based customers”, which are long term customers that “had withstood the crisis with strong financial standing and payment track record”;

c. confidence in delivering not less than 30% profit growth in the upcoming H1 results (profit was up % in Q1) to be released on Aug 11th (note this would suggest only a moderate 6% growth in Q2 vs +63% in Q1);

d. the Board does not “eliminate the possibility of share buy back to protect minority shareholders interest”.

􀁺 We are however not confident the above clarifications could stem the decline (the stock has, in just over a fortnight, fallen from $1.46 to $1.23), not when no one is clear just what are the “real” reasons for the weakness: general disillusionment with S- chips (Yanlord for instance is also under severe stress, Dukang, the maker of baiju, has breached important technical support ; the company’s many non-core related investments in recent years; concern over fallout from the Euro crisis....

􀁺 Our last BUY call in Oct ’10 (partly on the basis of its cheaper valuation relative to Cosco) needs to be reviewed.

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