HOLD S$1.04 STI : 2,773.17
Price Target : 12-Month S$ 1.10
Investment into microfinance business Yangzijiang announced that it has entered into an agreement to acquire a 31.5% equity interest in Wuxi Runyuan Technology Microfinance Co. Ltd (“Wuxi Runyuan”), a company incorporated in China in April 2011, with a paid-up share capital of RMB300m. Wuxi Runyuan is a company licensed to provide microcredit to small and medium technology enterprises.
While the investment in Wuxi Runyuan is a mere RMB94.5m, continuous investment into such non-core businesses will not be taken favourably by investors. Since 2009, Yangzijiang has invested a total of RMB907.5m into microfinance / venture capital businesses.
Deposit received from Seaspan
Recall that Yangzijiang inked shipbuilding contracts worth US$700m with Seaspan to build seven units of 10k TEU containerships in June 2011. In addition to deposits for five vessels collected in Jul-Aug, Yangzijiang has now received deposits for the remaining two contracts from Seaspan. Thus, all the seven contracts have become effective. Besides, Seaspan has outstanding options for 18 units of identical vessels with Yangzijiang at US$100m each, which are expected to be gradually converted over the next few quarters.
Maintain HOLD and target price of S$1.10. While valuation is undemanding, sector headwinds have risen. Raising its investments in in non-core micro finance businesses will be an added factor to de-rate the counter.
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