Yangzijiang Financial Holding

[CY09]

If you read the slides in details, one noticeable thing is that YZJFH has $909 million in Singapore in cash management account. $337 million in its Singapore funds,investments and $719 million in China as cash management.

YZJFH market cap is $1.133 billion. To me, how the market seems to be valuing is that many of YZJFH investment are worthless or haircuts have to be taken to its cash holdings.

With 80% of its market cap attributed to the cash holdings in Singapore, I do feel YZJFH is being underpriced. What is needed is for Mr Ren to take on some friendly shareholder returns action such as an aggressive SSB amounting to 10% within a year (set aside $115 million) on top of dividends. YZJFH can easily do that since it has so much cash now idling in Singapore

<Still vested as a core but have not increased my holdings for about a year>

[weijian]

hi CY09,

Aggressive SBB? 2 scenarios below for a shareholder who doesn't sell:

(1) Aggressive SBB using 100mil to buy back 250mil shares (ie. avg cost of 40cents/share)
(2) "Milder" SBB using same 100mil to buy back 330mil shares (ie. avg cost of 30cents/share)

YZJFH has recently cancelled 276mil shares or ~7% of outstanding shares. They were worth avg ~38cents. So as YZJFH buys back more shares in the future, I would assume it continues to cancel those shares. If this is the case, would shareholders (or for this case, Mr Ren, Ren Junior and YZJSB Employee Trust) prefer to cancel 330mil shares or 250mil shares?

I actually think that YZJFH has learnt a good lesson over the past 1.5years of SBB.

Of course, between option (1) and (2), some minorities would say both actions are accretive since they are buying at "big discount to NAV". But option (1) is more satisfying because they get a bigger dopamine boost since paper wealth is more?

How about a 3rd scenario "SBB using same 100mil to buy back 400mil shares (ie. avg cost of 25cents/share)"?!??!

[CY09]

In fact that's why I suggested 113 mil. Because it's 10% of current market cap. I'm inclined for the mgmt to just defend at current price and not aggressively buy up. But if they wish to, they could. The main idea is to instill confidence to public investor that the cash is real and we are putting the cash where our mouth is.

It will be better if chairman Ren uses his own money but based on track record he doesn't

[dreamybear]

Kudos to the mgmt for being proactive in improving the communication and engagement with shareholders.

------------------

OVERVIEW OF INVESTMENT STRATEGIES AND FREQUENTLY ASKED QUESTIONS
https://links.sgx.com/FileOpen/YZJ%20FAQ...eID=730772

So, here we have the FAQ again - I think OPMI can probably infer thru' these comm efforts that the mgmt is interested in engaging investors, and in how the market is perceiving/pricing the company. 

FY2023 FREQUENTLY ASKED QUESTIONS
https://links.sgx.com/FileOpen/Yangzijia...eID=792727 (emphasis added)
"The IPO prospectus states that in the three years after the spin-off, that is, by April 2025, the Group’s investment asset allocation will be 50% in China and 50% outside China. This goal will likely be achieved within 1H2024, earlier than the original target"

[CY09]

What surprises me is that most of its Sg cash is still in RMB. But it also means we can expect higher interest income once its converted to USD. The difference in risk free rate between USD and RMB is about 2.25%. It can be a significant income booster when YZJFH has so much cash sitting here.

The company is expecting a further depreciation in RMB as well. I am interested to see the effects of its income and balance sheet after the conversion of its offshore transactions into USD based on the above.

In the section of Investment Management: Debt Investment, it seems like someone has already asked why has YZJFH allowance increased despite the 30-35% reduction in DI

[weijian]

Hi CY09,
Offshore renminbi is denoted as CNH, while onshore renminbi is RMB.

Some other notes/thoughts:

(1) Company has been recognizing some huge translation losses on its renminbi denoted assets when translated to SGD for accounting purposes in the last 2 years. But these losses were never realized at P/L in 2H23 even after moving a huge chunk of assets off China - And now we know why, as that they are still in CNH. When they eventually convert CNH to USD, I reckon there will be considerable FX losses. If we were to look at its latest reporting, it recognized 8.4mil and 42.3mil in FY23 and FY22 respectively of net FX gains. Are these hedging gains? Will these gains be reversed when they convert their currency?

(2) Company has detailed 4 main investment strategies moving forward and revealed min 8% ROE for its Maritime fund. It has also stated as below:

Singapore is the Group’s strategic hub for fund management, extending its reach to global markets, including the US and UK. It will capitalise on regional opportunities, focusing on safe investments that generate stable and reasonable returns.

Before it split out from its parent, its DI business (debt investments, or shadow banking or subprime lending) was lucrative at mid teens ROE, and that is without leverage. With this 4 main investment strategies moving forward, and considering that 10% of the fund in cash/yield enhancement products (which probably yields mid/low single digit ROE), I think it is highly probable that the "ceiling" ROE of YZJFH would be a high single digit in the near/med term. Earlier mid teens ROE that it used to enjoy, are a thing of the past, IMHO. Nonetheless, at 0.3X P/B sort of cost, shareholders are still "enjoying" double digit ROEs.

(3) I remember some time back, VB dominihai was talking about the possibility of "distressed debt" investing. I think with their lessons/experience that they are gaining in NPL (40% ratios that is expected to be elevated for some time), it is apt that they evolve!

Among these opportunities, we are evaluating the strategic acquisition of non-performing assets for restructuring and eventual monetisation

[CY09]

Thanks weijian. So for this year while there is a chance yzjfh will wean off on recording allowance impairment on p/l. The exchanging of currency will be a red ink on the p/l. As yzjfh has committed to paying 40% of earnings.

The loss of DI interest+ fx losses is going to put EPS down. Penning it down to prevent us from being shocked by a FY23 decrease in earnings

[weijian]

Thanks weijian. So for this year while there is a chance yzjfh will wean off on recording allowance impairment on p/l. The exchanging of currency will be a red ink on the p/l. As yzjfh has committed to paying 40% of earnings.

The loss of DI interest+ fx losses is going to put EPS down. Penning it down to prevent us from being shocked by a FY23 decrease in earnings

Hi CY09,
After reviewing the recent AR23's accounting notes/movements and studying more , I have to make corrections to my earlier misunderstanding:

(1) From the accounting notes, there are 3 types of currency:
Functional currency: RMB
Foreign currency: USD/JPY/Euro (majority USD)
Presentation currency: SGD

Based on pages 128 of AR23 onwards, the company doesn't hold much SGD and all translation losses (~441mil) it recorded in comprehensive income in 2022-2023 are only due to reconciliation for presentation purpose. While it does changes the equity position and hence the NAV in SGD, it will not affect the income statement.

(2) So what really matters is its functional currency RMB and its exposure to foreign currency (let's use USD for simplicity sake). The company had a statement about its FX gains as below for FY23:

In 2023, the Group reported net foreign exchange gains of S$8.41 million, a decrease from S$42.38 million in 2022. The decrease in net gains is primarily attributed to the slowing trend of the USD's  appreciation against the RMB over the year.

From AR23, we see the company had currency contracts that are net positive USD (long position) and net negative RMB (short position) for FY22/23. As such, I suspect the FX gains described in the financial statements, are a result of (1) currency contracts exposure as described. (2) earnings from its USD denominated assets which are converted back to functional currency RMB.

In conclusion, with FY23 showing much bigger net positive currency exposure and asset base for its foreign currency USD, we can really expect more FX gains if USD continues appreciation and vice versa (ie. FX losses if RMB appreciates). And when it converts CHN to USD, the company will not be recognizing any losses to P/L.


P.S. I apologize for my earlier mis-statements. And if my above understanding is misguided, I look forward to VBs who are formally accounting-trained to correct me.

[CY09]

https://links.sgx.com/1.0.0/corporate-an...2f13b119d0

After a long spell, the company has another share buyback. If one notices it is at 0.32. Based on the pattern, it seems the company is only buying back shares at 0.32. Anything higher, its a willing buyer, willing seller. The floor seems to have been set at what the company evaluates it to be. Of course, if there is a massive selldown like few weeks ago, where the company's block of 0.32 purchase was filled and much more volume was sold, the company took some time to add more blocks of 0.32 purchase.

A trading opportunity for us based on my inference to how much the mgmt is valuing their company

[dreamybear]

https://links.sgx.com/1.0.0/corporate-an...2f13b119d0

After a long spell, the company has another share buyback. If one notices it is at 0.32. Based on the pattern, it seems the company is only buying back shares at 0.32. Anything higher, its a willing buyer, willing seller. The floor seems to have been set at what the company evaluates it to be. Of course, if there is a massive selldown like few weeks ago, where the company's block of 0.32 purchase was filled and much more volume was sold, the company took some time to add more blocks of 0.32 purchase.

A trading opportunity for us based on my inference to how much the mgmt is valuing their company

Considering the company supporting the price at 0.32, the downside for OPMIs is somewhat "protected". But what about the upside, i.e. what must happen for it to trade at a better valuation, better investor sentiments towards China ? 

Referring to your earlier post, 80% of its mkt cap is in cash holdings in SG.
https://www.valuebuddies.com/thread-1076...#pid170575

Could the current valuation be the "new normal" moving fwd due to the geopolitical landscape ?

Imho, perhaps this stock could be viewed as more of a long term dividend play, i.e. OPMIs must be comfortable holding it with around 6% yield for a long time. In that case, I wld evaluate its investment merits against stocks like DBS, HKLand, NikkoAM-StraitsTrading Asia ex Japan REIT ETF, CapitaLand China Trust, Ping An, Big China Banks.