Yangzijiang - Is it good enough to buy?

With the recent fall in the share price of Yangzijiang (YZJ) to ~$1.30 today, maybe it's time that we start looking at it as a possible opportunity for investment.

I did an earlier post on YZJ here: Yangzijiang - A worthwhile look?, but this post will be a slightly more detailed look at the share

(Image source: http://www.yzjship.com/en/job.asp)

This has been one of the shares that I've been eyeing lately (another one of them being Jardine C&C, which has increased quite a bit today) I quite like this share as it is able to remain resilient in one of the worst downturns facing the shipping industry, with a high ROE of 17%. Along with the decrease in the oil price in recent months, the shipping industry may be able to take a turn for the better, which would definitely benefit the company.

Another plus side is the strengthening RMB against the SGD for the last few years, a trend which would benefit the company's Singapore investors. However, some of its orders do come from countries outside of China and this may sort of balance out the increase.

There is also consolidation of the Chinese shipbuilding industry. There used to be 3000 yards across China in 2010, which has dwindled to just 100 currently with active day-to-day operations. This decrease in number of ship yards would reduce the competition that the company faces and also allows the company to grow its market share.

These factors add a lot of plus points for the company for me, which would allow it to grow its earnings, which would benefit its shareholders through capital appreciation or dividends.

Now to relate the share to its price. It has a P/E ratio of just below 7 at a price of $1.30, it paid out a dividend of 5.5 cents for 2014, which would give it a dividend yield of 4.2%. with a payout ratio of roughly 30% for the past few years. But it is able to earn a good return on its equity as mentioned earlier, so maybe its actually better to leave your money with the company to allow it to grow. (Read: Thoughts on Investing for Dividend Yields)

These factors make YZJ quite an attractive stock at its current price that offers a reasonable dividend yield, opportunities for growth as well as a low P/E ratio. But with the recent decline in the Chinese stock market (don't really see how this would affect the company) as well as the Greece debt crisis, the share price may fall further in the near future.

P.S. Despite the risks mentioned in the last para, I've invested in the share as I think that this is a good  opportunity to pick up this share at this price before it continues its climb up, possibly due to one of the reasons mentioned above

If you have enjoyed this post and would like to receive notifications on new posts, please subscribe to my blog via email