Singapore Corporate News- 28 Apr 2008

Yangzijiang eyes over 50% jump in earnings

CITING expansion plans, robust order books and existing strong fundamentals, Yangzijiang Shipbuilding is confident of sustaining earnings growth of more than 50 per cent this fiscal year and the next.

The management of the Chinese shipbuilding company was in Singapore last week for a roadshow presentation and an annual-cum-extraordinary general meeting with shareholders.

In his first interview with the Singapore media since the company listed here in April last year, Yangzijiang chairman Ren Yuan Lin said the group's shipbuilding capacity is expected to jump by a stunning two million deadweight tonnes (dwt) from the current 300,000 dwt by end-2010 when a phase two expansion programme at its newly acquired yard is completed.

At the same time, the group is considering raising capacity at its existing shipyard at Jiangyin City by 20 per cent.

Last month, Yangzijiang indirectly acquired a 24.81 per cent equity interest in Jiangsu New Yangzi Shipbuilding Co (JNYS) for $517.67 million via cash, loan and a share issue, which raised its equity interest in JNYS to 100 per cent.

JNYS owns a new yard in Jiangyin Economic Development District in Jingjiang City in Jiangsu, which is currently undergoing first-phase expansion to a capacity of 1.2 million dwt next year.

'We expect to see double-digit growth of more than 50 per cent from a year ago or even 80 per cent, and our confidence is based on the expansion plans that we have, the robust order books and current operations,' Mr Ren said in Mandarin.

Last year was a rosy one for Yangzijiang - its net profit almost doubled to 869.51 million yuan (S$169 million) from 454.34 million yuan a year earlier on the back of a 66 per cent jump in revenue to 3.86 billion yuan derived mainly from its shipbuilding activities.

'Our order books are packed to 2011-2012, which ensures that within the next five years, our shipyards are full,' Mr Ren said. This will help the group tide over any industry downcycle for the next five years. Although the group has only received two shipbuilding contracts in the first quarter, Mr Ren said it is confident of meeting its full-year order target of 50 vessels worth US$2.2 billion.

Besides increasing its shipbuilding capacity, Yangzijiang is looking to acquire contractors that are currently doing outsourced fabrication work for the group. Such a consolidation, to keep its costs within its internal operations, is expected to bring its operating costs down by two percentage points.

In view of likely better margins from building larger vessels at JNYS and hedging measures against the strengthening yuan, Mr Ren said the group is confident of keeping its gross profit margin steady around 20 per cent. This is also despite the current challenges of rising steel prices, the weakening US dollar and labour costs having risen 10 per cent each year.

'We make some upfront payment to steel suppliers and upon receiving the supplies, we receive a discount on the balance payment,' Mr Ren said.

Assuaging fears of any cancellation of contracts should customers fail to pay, he emphasised that Yangzijiang is unlikely to face such an issue. This concern was raised since its rival Cosco Corp announced the cancellation of a US$202-million project to build a GM5000 semi-submersible rig hull for Norwegian owner Red Flag because the customer failed to pay the required deposits for work to start.

'All our announced orders have at least 40 per cent of the payment being locked in,' Mr Ren explained. 'Clients have to pay 20 per cent of deposit upon the signing of the contract and another 20 per cent in bank guarantee.'

Shares of Yangzijiang were dragged along by the bad news from Cosco two weeks back. Mr Ren obtained shareholders' approval for a mandatory share buyback of up to 10 per cent at the EGM last Friday to lend support to its share price, which he perceived to be undervalued.

The stock climbed two cents, or 1.9 per cent, to $1.10 after an active trade of 58.09 million shares last Friday.

Novo aims to be major player in steel trading

MARKET debutant Novo Group expects to emerge as one of Asia's - and possibly the world's - most prominent steel trading groups in short order.

The company, whose shares start trading on the Singapore Exchange this morning, said it was already riding on the strong growth in global trading of semi-finished and finished steel products.
Novo counts steel industry 'big boys' such as Arcelor Mittal, Cosipa Group, Reliance Steel and Tianjin Iron & Steel Co amongst its clients.

Dicky Yu, Novo's executive chairman, sees Novo's successful placement as a sign of investor confidence in the company's prospects. He also likens his company to a 'mini-Noble Group' in the making. Mainboard-listed Noble is a successful global commodities trader.

'After crude oil, steel is the world's second largest traded commodity and Novo is at the heart of the steel business,' he said. 'We believe that the strong response to our IPO placement is a testimony to Novo's sound business fundamentals, clear profit growth strategies and the positive outlook in the global steel industry.'

After initial delays amid jittery market conditions, Novo managed to place out all its 146 million new ordinary shares, including 4.4 million shares to UOB Kay Hian as settlement of placement commission, at a price of 20 cents per share.

Amongst Novo's key investors is mainboard-listed HG Metal Manufacturing, one of South-east Asia's largest steel stockists, which took up 10 million placement shares.

Mr Yu added that Novo, which was created from the reverse takeover of Neocorp International, was well placed to ride on the uptrend in steel trading.

He said Novo's reach spanned the entire spectrum of the industry - from mines and iron/steel mills, to stockists and end users. 'Our integrated business model enables us to add value to customers, and provides us better margins.'

The company raised $28.4 million in net proceeds from its IPO which will fund its expansion plans; and fulfils the required minimum shareholding spread to maintain Novo's listing status. In addition, Mr Yu revealed that his company has also secured banking facilities of over US$300 million to provide additional funding to scale up its operations.

'We have the working capital to enable the company to grow even faster and stronger,' he said.

For the 12 months ended April 30, 2007, Novo chalked up net profit of US$7.3 million on a revenue of US$310.9 million. For the five months ended Sept 30, 2007, it reported a 96 per cent rise in revenue to US$211.5 million, from US$107.7 million for the corresponding period the previous year, with net profit almost quadrupling to US$5.7 million, from US$1.5 million.

Luck plays a part in success: Noble founder

In an office full of modern Chinese paintings overlooking Hong Kong's Victoria Harbour, Richard Elman, founder and head of Asia's largest commodities supplier Noble Group, says he has been lucky.

Mr Elman, who began his career in a scrap yard in England at the age of 15, is among the few non-Chinese listed by Forbes magazine as the wealthiest in town.

'I've just been lucky... being in the right place at the right time,' Mr Elman said, adding he has always believed in fate.

Noble, which he set up 21 years ago with his savings of US$100,000, is capitalised at around US$4.8 billion.

It supplies raw materials from coal, iron ore to coffee, chartering more than 100 ships at any given time. Its assets stretch from iron ore reserves in Brazil and ports in Argentina, to coal mines in Indonesia and soy crushers in China.

Fuelled by surging demand from Asian countries such as China and India, Noble's net profit spiralled to US$258 million by 2007, rising more than 10-fold since 2000.

'I never had any great ambition. I did it for fun, because I enjoyed it, and to make a living. That's what I still do,' he said last Friday, sipping his tea, relaxed in an open white shirt with beige Chinese bead bracelets dangling from his arm.

Mr Elman, 67, said nobody knew much about commodities when Noble was established. The company moved its stock listing in 1997 to Singapore from Hong Kong, where they felt they had not been understood and appreciated.

'We started in the years when nobody even talked about commodities,' he said. 'We built the company during years of disinvestment, very tough years.' Noble has expanded through economic downturns, taking over a series of companies in financial difficulties such as Andre & Cie SA from Switzerland, once one of the world's top five grains traders, earlier this decade.

Noble prides itself on building pipelines from production to consumption, controlling and profiting from every link in the supply chain of raw materials, including ships and warehouses.

'At the beginning we could sit with two telephones and make a living. But over the years that disappeared,' he said.

'We don't have to actually own the assets but to secure more long-term marketing rights we bought some assets.'

Mr Elman said he hoped Noble would be larger and more professional in five years. It already employs more than 10,000 people and has over 100 offices in 40 countries.

'The company has grown about 20 per cent every year in physical volume,' he said. 'For us to increase physical capacity gives us the ability to work with very tight margins.'

Combining its business and geographical presence, the company is expanding rapidly into new businesses, such as biofuels and carbon credits. It had a market share of 28 per cent in certified emission rights to the carbon credit market last year.

Despite Noble's growing ethanol business, Mr Elman said he was not fully convinced about biofuels, which many countries have promoted with generous subsidies. 'I am selectively convinced,' he said. 'Ethanol works in Brazil. There's no question about it. (But) if you look closely at biofuels around the world, it often has its challenges.'

One area of potential expansion is uranium, which has seen prices soar to historic highs in the past five years, due to a nuclear power renaissance in the face of energy shortages and global warming caused by greenhouse gas emissions.

'I think the future energy requirements of the world will come from nuclear,' he said. 'We'd start with (uranium) mining ... if they're the right price, we'll pursue them.' Mr Elman said Noble would look at each opportunity and there was no shortage of offers coming its way, even though some of the easier targets had already been taken.

'There's consolidation in all these industries. We live off the crumbs of the big boys, which could develop into loaves of bread.'

As a teenager in the 1950s, Mr Elman started out sorting non-ferrous scrap metal after dropping out from school in London. His barrister father and his mother, who made women's clothes, got him his lucky break into the business.

He first landed in Hong Kong in 1968 as a metal merchant for a US company. Following a stint in New York, he returned to Hong Kong to set up his own company after leaving Phibro, now part of Citigroup Corp.

Elman moved commodities in and out of China in the 1970s, when it was ruled by Chairman Mao Zedong. He was the first to sell China's Daqing crude oil to the United States.

Asked for his key to success, Mr Elman said: 'Don't forget where you came from. Don't forget your origins. Don't forget you're fallible. Respect people, trust people.'