Yangzijiang Financial Holding

[LionFlyer]

Disappointed if this is indeed the case. If there are direct political pressure guiding investment decisions, then it would make me reconsider, no matter how compelling the valuation or prospect.

[Big Toe]

Just last friday china's new financial regulators held a meeting that called for coordinating support to resolve local debt. Their job is to overhaul of its regulatory system this year. This is at the central government level so it affects the entire country. I am almost 100% sure that they will try their very best to allocate both private and public resources to tide over the debt/property crisis. Bear in mind a lot of local government spending is funded and backed by land sales. No land sales = no funds.

Banks and financial institutions will need to do some form of national service. And in return there should be some incentives for doing so.

Also, having the CCP take over the private entities is an extremely bad idea in more ways than one. Much much worse than having the companies go bankrupt. To give a sense of how scary the idea is, refer to The Land Reform Movement, also known by the Chinese abbreviation 土改, where there was a transfer of private to public land assets.

[CY09]

The takeovering comment was said in jest (with a smiley face).

However to do national service while having a large amount of capital deployed in non-performing segments is very bad. If we account for property + construction, it is 44% of YZJFH DI. That is SGD$1.02 billion or 25% of its entire portfoilo. No doubt it is earning double digits interest but the risk there is high. If we peg it similar to the bond value of Tier 2 proeprty developers at 5% face value (approx), we are looking at the wipe out of SGD$950 million. That's a very expensive national service, and probably explains why YZJFH has never traded close to book value.

It's also worth noting that YZJFH has amended its debt investment in China target, what used to be 30% as long term target, it is now of 50%

[CY09]

https://links.sgx.com/1.0.0/corporate-an...1efa445c5d

One thing I notice about YZJFH SBB is that it seems there is a fixed amount of shares it will buy at each price level. Once that amount is reached, they will only buy back shares at 1 price lower. And then the quota is slowly drawn down.

This is what i observed when it was buying at 0.36 but at declining volume, when it broke to 0.355, a large amount is bought and is now dwindling down to a few hundered K shares. Likely YZJFH will not be defending the 0.355 level and queueing again at 0.35

[dreamybear]

https://links.sgx.com/1.0.0/corporate-an...1efa445c5d

One thing I notice about YZJFH SBB is that it seems there is a fixed amount of shares it will buy at each price level. Once that amount is reached, they will only buy back shares at 1 price lower. And then the quota is slowly drawn down.

This is what i observed when it was buying at 0.36 but at declining volume, when it broke to 0.355, a large amount is bought and is now dwindling down to a few hundered K shares. Likely YZJFH will not be defending the 0.355 level and queueing again at 0.35

Hmmm, interesting observation. Maybe value hunting its own shares or not wishing its share price to appreciate too much or ?? 

I guess the good thing is at least the mgmt is taking shareholder friendly actions but this investment is likely to be a very long game.

Regarding the issue of "National Service", the article below* mentions Kweichow Moutai previously buying a stake in a LGFV. Some info at 2nd article below**. Not trying to imply such things may happen, but for investors who live outside China, it's probably worthwhile to at least have some ideas what can possibly happen/has happened before.

*China’s LGFV Insiders Say $9 Trillion Debt Problem Is Worsening (paid)
https://www.bloomberg.com/news/articles/...#xj4y7vzkg

**Moutai Shareholders Plan Lawsuit Over $122 Million in Donations to Local Governments
https://www.caixinglobal.com/2020-12-07/...36708.html

[weijian]

YZJFH 1H 2023 
Note 15 Debt Investment (DI)
Allowance for impairment loss
Opening 255,144
Ending 228,299
Reversal to P&L (ie writeback) 8,493
Debt Investment written off is 18,352 ie 255,144 - 228,299 - 8,493
(Update - 1H2023 Result Presentation stated that there is no utilisation, hence the difference is due to currency translation ).

Redemption 452,007 (vs 1H2022 of 1,187,773)
New DI 474,373 (vs 1H2022 914,656)

As at end Dec 2022, the current portion of DI is 2,264,600.  
1.  The 452m redemption (in the first 6 months) represents 20% of the current DI (to be redeemed within 12 months) 
2.  Some of these current DI may have been refinanced/repackaged with a longer repayment period, resulting in amount rollover to the non-current portion.

Issue - While it is management intention to scale down DI, is it reasonable to expect a complete STOP to approving new DI for the half year?  Don't get me wrong, I would very much like to see a meaningful reduction in the total DI amount.

Note 16 Trade and Other Receivables
1.  Allowance for impairment of loans to non-related parties – microfinance
The reduction is likely to be loan written off of 1,779
2.  Nature of the 105,309 increase in other receivable - non-related parties - other assets (money placement for some yet to disclosed business venture?)

hi yoyo,
Thanks for helping to explain the movement of the loss allowances here. Would you be able to see if my explanation of the NPL movement is correct? (it is found under slide 16/17 of the presentation

1H23 ppt: https://links.sgx.com/FileOpen/YZJFH%201...eID=769833

PRC debt: 2,334.8
Opening NPL = 41%
Ending NPL = 37%
Fully recovered NPL = 16.998 (or 16.998/2334.8 = 0.73%)
Loans reclassified out of NPL (loans that got renegotiated I suppose) = 388 (or 388/2334.8 = 16.6%)

Movement of NPL = 4% = "Fully recovered NPL" + "Loans reclassified out of NPL" -  "Loans classified as new NPL"

As a result, "Loans classified as new NPL" = 0.73% + 16.6% - 4% = 13.3%

[BRT]

didn't check the math and specific numbers, but based on the last line:
"New loans classified as NPL" = 0.73% + 16.6% - 4% = 13.3%

it should be described as "loans classified as NEW NPL" instead of "NEW loans classified as NPL"

[Yoyo]

Hi weijian, you are almost there, need to factor in the impact of currency translation difference.

Loan and NPL
a. Opening Loan 2402.2 @41% = 984.9 NPL
b. Fully recovered (principal) = 14.0 NPL
c. Reclassified OUT (principal) = 388.1 NPL (16.6% of Ending NPL)
d. Ending Loan 2334.8 @37% = 863.9 NPL
New Reclassified IN + Currency Translation Diff = 281.1 (d-a+b+c) That is 12.0% of Ending NPL.

Assuming the same impact of Currency Translation Diff of app 8% [ (18352/228299) * 863.9] = 69.4
Hence New Reclassified IN = 281.1 + 69.4 = 350.6 (ie 15.0% of Ending NPL)
<Correction - cannot ascertain the impact of Currency Translation Difference>

[weijian]

@BRT, thanks for pointing it out. I was focusing too much on my maths than english. I have made the correction.

@Yoyo,
Thanks for the confirmation. Just as the team managed to negotiate the existing ones with some of the loans going >2 years, new NPLs are coming in "fast and furious". Debt instruments in non current assets --> 154mil (FY21) --> 181mil (1H22) --> 407mil (FY22) --> 619mil (1H23). That is an increase from ~3.6% of equity to ~16% of equity in 1.5years. I am reminded of the old adage when dealing with loan defaults..."amend, extend and pretend".

On another side note here about currency translation differences. Due to MAS's aggressive intervention on the SGD in the past 1.5years, the SGD has been strong relative to most Asia Pacific currencies. As a result, we have been seeing a lot of currency translation losses (not recognized in P/L but directly into equity) for companies that had operations in these Asia Pacific regions. For example, Hotel Grand Central and ISDN Holdings have substantial translation losses due to its operations in Australia and China respectively. But for this 2 companies, the translation losses are mainly on hard assets (PPE) which probably wouldn't not be sold (ok, HGC might sell 1-2 hotels) and so OPMIs do not need to regard those losses too much. But for companies like YZJFH whose assets are all financial in nature, the currency translation losses are real and hard hitting.

[CY09]

YZJFH's assets while financial in nature can be considered as "Hard assets". This is because it has been rolling over the amount with the inability to bring the cash out of China as original intentions