Yangzijiang hits rough waters amid Beijing's probe into individual linked to firm

Singapore

SHARES of Yangzijiang Shipbuilding (Holdings) tanked on Thursday morning by almost 30 per cent - prompting a query from the bourse's regulator about its wild price swings.

Within minutes of the query from the surveillance unit of Singapore Exchange Regulation (SGX Regco), the company, China's largest non-state-owned ship-builder, called for a trading halt.

The halt request was submitted by shipbuilder's founder and executive chairman Ren Yuanlin.

The rumour mill had started churning last week, when global shipping news service TradeWinds reported that Liu Jianguo, described as a "veteran political patron of the shipbuilding industry", was being probed for "serious disciplinary violations".

Tradewinds said this was announced in a statement released in June by Beijing's Central Commission for Discipline Inspection, the Communist Party of China's own powerful anti-graft body.

The report said that Mr Liu's career was "especially closely connected" with Yangzijiang; it included a long period of service in the key shipbuilding region of Jiangsu province, where Yangzijiang's production areas are located.

Mr Liu is also chairman of the management committee of the Jiangsu Yuanlin Charity Foundation set up by Mr Ren, Yangzijiang's largest shareholder. The foundation is funded by annual dividends from his shareholdings in Yangzijiang; the first dividend payout in 2011 was worth some 270 million yuan (S$53 million), said the company's 2018 Sustainability Report.

When contacted, Yangzijiang's investor relations firm declined comment. The Business Times understands that the company may make an announcement this weekend.

On Thursday, nerves were rattled and confoundment reigned over the possible triggers of Yangzijiang's stock plunge, reigniting concerns over S-Chip companies, the reputations of which remain fragile after a string of scandals here in the past.

But Yangzijiang, deemed a pure-play shipbuilder, had stood apart from this doubtful bunch. It has been well-regarded in the investing fraternity for its clean balance sheet, its profitability ratios that have outshone those of its peers and its ability to snag contracts.

Mr Ren's son Ren Letian is group chief executive.

DBS Group Research, in a report issued only this week, described Yangzijiang as "one of the world's best-managed and profitable shipyards" and the "largest and most cost-efficient private shipbuilder", with a robust order backlog of US$3.1 billion as at the end of June.

On the strength of its outstanding order book, Yangzijiang is ranked No.1 in China and fifth in the world.

But none of this appeared to matter on Thursday. Investors were ditching the shipbuilder's shares, sending them below the S$1 mark to an intra-day low of 93 Singapore cents - a fall of 28 per cent. The counter later pared losses to 20 per cent and stood at S$1.04 before the trading halt.

It was the day's most active counter, with some 84 million shares worth S$98 million done, despite its truncated trading window.

Yangzijiang had unveiled its second-quarter scorecard on Monday, with net profit coming in 6 per cent lower at 936 million yuan; revenue fell 12 per cent to seven billion yuan. The family-owned shipbuilding giant's first-half showing beat analysts' expectations, thanks to a reversal of provision.

Some time in mid-April, it was announced that Mr Ren, 66, had donated 150 million of his Yangzijiang shares - 3.8 per cent of the company's shares - to a newly set-up trust to reward senior management in the group's various business divisions.

The outlook for the sector juggernaut appears choppy - weakening economic and trade growth fuelled largely by the US-China tariff spat and waning macro indicators may hurt demand for new ships or trigger order cancellations.

In the first half of this year, global new shipbuilding orders fell by half (in terms of deadweight tonnage or DWT) from the first half of 2018.

Given the "impending economic downturn" and the weakening US dollar against the Chinese yuan, the bearprowl, a trading and research outfit, announced a short position on Yangzijiang back in March, with a 18-month target of 50 Singapore cents. The counter was trading at S$1.39 on March 8.

When contacted, Alex Yeo of thebearprowl said the house was "definitely sticking to the short target".

Bloomberg data on the stock's analyst coverage, however, appears 50-50 - at least for now, pending clarity from the company. Of the 11 analysts, five had a "buy" call, and three each had "hold" and "sell" calls on the counter.