Yangzijiang

Yangzijiang: Recall posting on 30 May, according to SinoShip News, Yangzijiang’s executive chairman and substantial shareholder Ren Yuanlin, has been implicated in a case involving Tianjin Guoheng Railway Holdings. The railway company was said to have filed a report on 27 May to the authorities, alleging that Ren, its largest shareholder conducted several illegal activities, including insider trading, misrepresentation, infringement of the independent operation of a listed company, illegal access to shares of listed company, manipulation of stock price and interference in the truthful disclosures. Ren assured the company that allegations made against him are mischievous and calculated to damage him and his corporate objectives. Ren has sought professional advisers to explore available remedies against the allegations. UBS reckons that with little information to lean on, the market’s ability to independently and accurately assess the impact on Yangzijiang is limited. At the very least, this turn of events suggests that Ren would now be distracted by other matters. Furthermore, if this episode triggers a change in Yangzijiang’s approach to its Rmb14b Investment portfolio, or affects its relationships with its banks, the sustainability of this portfolio’s returns is unclear as well. Yangzijiang’s closing price of $1.01 on 30 May implies that the market ascribes shipbuilding gross profits which are more than 20% below UBS' assumptions. It is too early to say if the bad news is priced in, as the situation is volatile. For instance, a downside scenario which assumes revenue and margins at the low end of Yangzijiang’s target range would impact valuation by $0.55/share.