A layman's approach to Yangzijiang (YZJ)

Some weeks ago, after YZJ lost 30% in market capitalization in a single day, more than a few courageous investors figure that it could be an opportunity.

As you can see, it is also the lowest it has been for almost its entire life listed in SGX, saved for the Great Financial Crisis.

Personally, I am not a sophisticated investor, and uses simpler means to determine value.

Market Capitalization of Yangzijiang (as of now, based on 0.915 a share): 3.63B
Share price of YZJ at its lowest during the debacle: 0.755 a share: 2.98B

The easiest way to determine value is to look at its balance sheet. Safe to say, YZJ is a shipbuilding company, so it is not too wrong to use simple balance sheet investing, as opposed to services or software companies.

All figures above in RMB.

The following "discounted" values are used:
Cash: 4108.414
Restricted cash: 17.815
derivative fin. instruments: 2
Fin asset at fair value: 500

Receivables: 2000
Inventories: 1000
Contract Assets: 3000

Total: 10628M RMB

The biggest asset of all, "Debt investment at amortised cost," is 14520.602M. I have no idea how reliable this asset is... only the management will know. I note that there is a similar entry in the non-current assets section that is worth some 4266.881M RMB, but I shall leave it as it is now.

This approach is too conservative but I have always lean towards the cautious side.

All liabilities will not be discounted. As such, the value of 14570M is dervived.

Remember we left this debt instrument asset in the current asset alone. This is where we try to fit assumptions to value:

If Debt Asset is worth…	100%	75%	50%	25%
Debt Asset Value is…	14520.602	10890.4515	7260.301	3630.1505
Adding to adjusted, discounted, current assets of 10628M:	25148.602	21518.4515	17888.301	14258.1505
Liabilities	14570	14570	14570	14570
Net Adjusted Current Asset Value:	10578.602	6948.4515	3138.301	-311.8495
Adjust from RMB to SGD	2071.08	1360.37	614.42	-61.05
If Non-current asset is worth 14.7B RMB (approx. 2B SGD)*	4071.08	3360.37	2614.42	1938.95
…if YZJ is selling at 0.915, market cap is 3.63B	11% discount	7.5% premium#	28% premium	47% premium
…if YZJ is selling at 0.755, market cap is 2.98B	36% discount	12.7% discount	12.3% premium	35% premium

*We are making a huge, huge assumption here. We ascribing a value of 1 dollar for every 1 dollar of non-current asset, which is very generous. Let's not forget that there is about 4B of debt instrument valued in the books, which is about 820M SGD. How reliable is the assets?!

#premium means that we are overpaying, i.e. the value of the company is estimated to be 7.5% lower than the market price.

If YZJ were to be selling at 0.915 a share, and we feel that the debt asset is worth 1-for-1 dollar, then we are ONLY getting a 11% discount from the assumed value of YZJ.

Realistically, it the debt assets is only worth 75% of its stated value, and we were lucky enough to bottom pick at 0.755 a share, we are only getting a 12.7% discount of price to value.

I doubt that is enough margin of safety for the prudent investor. Some of these "investors" were already claiming to be geniuses, and others are fools!

***

Another observation should be noted: Within a space of six months, the debt instruments in the book increased by 29.4% in the current asset section, and 18.7% in the non-current. Should one be concern, given that the management has been less than forth-coming in disclosure (that its founder-director is under investigation), and that the company's main business is after all, shipbuilding?

Or should we all nod our heads in unison, and agree with the market, as it recovered from 0.755$ a share to 0.915$ a share?

The simpler the approach, the better.