Once again, Yanzijiang (YZJ) gave its shareholders a piece of good news that it had won 13 orders of worth $3.88m in Q4 2014. In total, YZJ had won 41 contracts of total worth $1.8b (US$1.42b) for 2014. Cosco Corp (Cosco), on the other hand, pre-empted the market that the company is expected to earn a significant lower earning due to falling oil prices (ST Saturday, 10 January 2015).
Based on the closing price of YZJ and Cosco, YZJ share price is more than twice that of Cosco. With YZJ’s shares outstanding of 3,831,838,000 almost twice that of Cosco of 2,239,244,954, YZJ’s market capitalisation is about 3.6 times that of Cosco. But, just less than 4 years ago around March 2011, YZJ’s market capitalsation is only about 1.56 times that of Cosco.
What’s the reason for the differing fate between the two companies? Could it be that Cosco had been too eager to get into the off-shore business and had mounted a lot of resources in that area for which they found the learning curve too steep? With the falling oil price, it is now more difficult for Cosco to back-pedal. The easy credit that it gave to customers to win contracts had probably back-fired and they have to auction off un-furnised projects. With negative operational cash flow coupled with a record of contract cancellation in the past years, the company is likely to face tougher times ahead.
YZJ, on the other hand, has a deeper pocket. Despite the bleak situation in the shipping industry, YZJ still managed to be profitable. It appeared to have better-quality customers and contract cancellations were surprising low compare to that of Cosco. The positive step to pull away from its non-core business such as micro-financing and to go back to the basics of ship-building should go well with investors in the long run. Furthermore, the significant drop in steel prices would also help to boost its bottom line going forward.
(Brennen Pak has been a stock investor for more than 25 years. He has accumulated a wealth of experience in shares investment. He is the chief trainer of BP Wealth Learning Centre LLP.)