Yangzijiang

Yangzijiang: Share price has been weak as Chairman Ren Yuanlin was involved in a dispute between his own investment vehicle and Guoheng Railway. The risk on HTM financial assets is overestimated and the core shipbuilding business remains intact. UOB Kay Hian maintains BUY with TP of $1.39. Officially there is no relation between YZJ and the dispute. However, public information suggests some connection between the parties. The takeover might be financed by YZJ’s Rmb330m lending to Shenzhen Sinotech via Held-To-Maturity (HTM) financial assets. Now the only involvement of YZJ is that the fund for the takeover for Guoheng was borrowed from YZJ. The Rmb330m six-month loan is at 12% annual interest and will be returned in Jul 14. So far, UOBKH cannot confirm the dispute is related to YZJ’s HTM financial assets, but if it is, it is likely a special case, as a) lending to Sinotech was made in 2010-12, when YZJ’s risk management was at an initial stage; and b) YZJ has been reducing long-term lending and lending with shares as collaterals. As of 1Q14, over 71% of collaterals were land and government related assets, which are much safer compared to shares. There were some default cases in the past few years, but YZJ managed to get the money back with sales of collaterals.