Yangzijiang Financial Holding

[BRT]

appreciate the discussion here! thanks for your writeups too squirrel which was helpful in many ways
had a look at their latest results presentation slides and parts of the listing doc. few points i humbly add:

1) about a third of their debt is related to the real estate sector (slide 27). that area is a headline concern ever since evergrande started making the news (more than a year already i think). while the various levels of the chi gov are trying hard to stabilize the situation, the dark cloud is still very much around, altho its been a year plus and nothing * major * has happened. i can trust in YZJ's risk management, or believe the situation is too serious to leave unscathed.
2) their long term target is to be 50 percent in sg 50 percent in china. they have a lot to shift from china to sg. the debt investments opportunity set should differ immensely so i dont know how much of the ">9.5% pre-tax ROA for last 3 years" can be improved on or even maintained (slide 4, 13). flight to safe sg, if i may put it that way, could come at cost of some returns.
3) new sgements of fund mgt and wealth mgt - super nascent so i didnt think too much around them but if i were to think the valuation is currently cheap, it would be a bet that these segments will be well executed.
4) the main thing i noted to look out for after going thru parts of the listing doc was the completion of the GEM acquisition cos a lot of what they plan to do seems to rely on the licenses that were held in that entity, but at time of listing, it was still in discussion. anyway happy to see that on april 28 it was finally concluded.
5) in summary - recent earnings seem to be downtrending, bit of a concern. no idea regarding the property sector dark clouds and potential impact. optimistic about the execution of the new segments. SBB and cheap vs NAV are great from the valuation angle.

https://links.sgx.com/FileOpen/YZJFH%20A...eID=728101
https://links.sgx.com/FileOpen/Yangzijia...ileID=6378

[CY09]

Company has been aggressive in share buyback this week -- buying 21.37 million shares. Previous week was 30.7 million share buyback

To me, this is a good sign of a renewed share buyback interest and I have invested in it.

I do hope the company continues this rate of share buyback and purchase the maximum of its mandate of 395 million shares

<vested>

[dreamybear]

Understand Squirrel has written a good article on how the company should be valued.

Was wondering whether there are other views, e.g. while looking at the valuations of various investment mgmr in the "peer comparison" section in the UOBKH research report, the P/E, P/B numbers seem to correlate with the ROE. Wld it be useful to reference the report's methodology of selecting the peer groups to determine the market valuation of YZJFH ?

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UOBKH Research Report
https://research.sginvestors.io/2022/06/...06-09.html

[weijian]

Understand Squirrel has written a good article on how the company should be valued.

Was wondering whether there are other views, e.g. while looking at the valuations of various investment mgmr in the "peer comparison" section in the UOBKH research report, the P/E, P/B numbers seem to correlate with the ROE. Wld it be useful to reference the report's methodology of selecting the peer groups to determine the market valuation of YZJFH ?

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

UOBKH Research Report
https://research.sginvestors.io/2022/06/...06-09.html

I learnt something from the guys at The Good Investors and I will just copy/paste below. I can't find the exact source but it is attributed to them:

I remember having this question answered by a fund manager who manages billions of dollars in assets. According to his observations, the value of the fund management company depends on the fund’s past performance. If the fund’s past performance produced an average return, the fund is worth approximately 5% of its AUM. But if the fund met its targeted returns or higher, it can fetch a higher price at 7-8% of its AUM. Needless to say, if the fund is loss-making, it can only expect to be priced at less than 3% of AUM. This is an invaluable insight and comes in handy to solve our equation.

The Good Investors' blog: https://www.thegoodinvestors.sg/

[karlmarx]

The company's debt portfolio is the reason why its stock is trading at current valuations.

It does look attractive from a book value and yield perspective, but it would be attractive only if the quality of its debt portfolio is good. Yet there's not much public information on that. I believe that's what a shrewd investor will look out for. So maybe someone here can be so helpful as to share who did YZJF lend money to!

Something quite similar happened years ago when retail investors were swooning over the yield of Eagle Hospitality Trust. Of course, being listed in SG for such a long time, YZJ definitely has much better credentials, so the risk that these people are trying to dump toxic assets or defraud investors should be lower.

Perhaps it is a coincidence that the timing of YZJF's spinoff took place when the real estate troubles in PRC appear to be worsening. But even if RYL did expect the debt investments would sour, and hence spun off YZJF, this does not mean that he would eventually be right.

Whether this is a value buy or a value trap, the fog should clear up pretty soon as the majority of its debt investments mature within a year.

[gzbkel]

Hi karlmarx,

Nice to see you in this thread! Hope to hear more about your thoughts.

The introductory document says this about their debt business: "our customers comprise mainly SMEs, micro enterprises and individual proprietors, we are subject to a higher degree of credit risks and our credit risk management may not be adequate to protect against customer defaults."

As Squirrel and some other people already mentioned, there are some indications that this is not as grim as one might think on first sight:
- The more risky stuff with outstanding legal issues is left with YZJSB
- NPL has dropped from 16% to 2% based on latest 6mth result. And they claim that their criteria for NPL is stricter than usual (As soon as something is overdue, its deemed to be NPL)
- About 70% of debt instruments is secured with collateral. According to page 127 of introductory document dated end 2021, collateral coverage is ~2x if we consider only debt with collateral, or ~1.2x if we include all debt secured or not.
- In latest report, there is writeback of allowance, suggesting things are not as bad as previously expected.

So if we believe the documents they issue, the debt instruments seems relatively safe. The share buyback is also an encouraging sign, even though I will be even happier if the chairman buys with his own money too.

I calculated that even if we take 50% haircut off the debt instruments, PB at today's price is still around 0.5, placing it somewhere between TIH and Hotung. Unlike Eagle which is loaded with debt, YZJFH has no debt so a write-down is not so crippling.

In latest report, "Debt investments at amortised cost" is reduced by 881m, and most of it has been moved to "Trade and other receivables" (around ~600m) instead of cash. I assume this is because the sum is now due but not collected. I wonder if this in the norm or does it suggest any difficulty in collection... Anyone with accounting knowledge can comment?

[weijian]

In latest report, "Debt investments at amortised cost" is reduced by 881m, and most of it has been moved to "Trade and other receivables" (around ~600m) instead of cash. I assume this is because the sum is now due but not collected. I wonder if this in the norm or does it suggest any difficulty in collection... Anyone with accounting knowledge can comment?

hi gzbkel,

Under pg23 of 1H22 report, it describes the receivables as below:

Our trade and other receivables increased by approximately S$674.3 million from approximately S$25.0 million as at 31 December 2021 to approximately S$699.3 million as at 30 June 2022, representing 19.3% of our current assets. The increase is mainly due to increase of prepayment of approximately S$677 million for potential investments.

1H22 report: https://links.sgx.com/FileOpen/YZJFH%20A...eID=728099

So this is not the typical "receivables" per say that one receives from a customer, but more of "pre-paid money" to buy an asset.

As for what potential investments these are, I do not remember seeing Mgt elaborate more in the reporting.

[karlmarx]

As Squirrel and some other people already mentioned, there are some indications that this is not as grim as one might think on first sight:
- The more risky stuff with outstanding legal issues is left with YZJSB
- NPL has dropped from 16% to 2% based on latest 6mth result. And they claim that their criteria for NPL is stricter than usual (As soon as something is overdue, its deemed to be NPL)
- About 70% of debt instruments is secured with collateral. According to page 127 of introductory document dated end 2021, collateral coverage is ~2x if we consider only debt with collateral, or ~1.2x if we include all debt secured or not.
- In latest report, there is writeback of allowance, suggesting things are not as bad as previously expected.

So if we believe the documents they issue, the debt instruments seems relatively safe. The share buyback is also an encouraging sign, even though I will be even happier if the chairman buys with his own money too.

These numbers should be quite familiar to most who have taken a look at YZJF. But obviously there is some doubt surrounding them which is why the shares are currently quite discounted. 

So how much would you trust that indeed only 2% of their loans are "non performing?" And how do they define "non performing?" 

If you were to lend someone money, I'm pretty sure the first question you would ask is who you are lending to. Otherwise, how do you even assess the risk? Since this information is not quite available here, I think YZJF investors are taking a pretty big leap of faith in the company's management. Which is perfectly fine of course if you are convinced.

I do think that it would be quite ridiculous if more than half of their loans are bad. But again, its hard to tell because you do not know who the debtors are.

[CY09]

YZJFH has promised to shift s$1 billion for Singapore investment by end FY 22. Portioning the need for share buyback and dividends, this means it has to shift s$900 million more from China to Singapore to have about s$1.2 billion in cash at the end of FY 22 reporting. A large chunk will likely come from redeeming its s$2.5 billion debt portfolio in China.

The question is post withdrawal of cash from China and depositing, how will the new composition across sector look like? 32% belongs to real estate and 11% to construction now. If post FY 22 these 2 sectors account for more than 50%, it will signal that YZJFH is having difficulty to redeem its debt and have resorted to other sectors to redeem to fulfill its investment needs in Singapore.

This will be a red flag and definitely will be questioned during the AGM

[Squirrel]

As Squirrel and some other people already mentioned, there are some indications that this is not as grim as one might think on first sight:
- The more risky stuff with outstanding legal issues is left with YZJSB
- NPL has dropped from 16% to 2% based on latest 6mth result. And they claim that their criteria for NPL is stricter than usual (As soon as something is overdue, its deemed to be NPL)
- About 70% of debt instruments is secured with collateral. According to page 127 of introductory document dated end 2021, collateral coverage is ~2x if we consider only debt with collateral, or ~1.2x if we include all debt secured or not.
- In latest report, there is writeback of allowance, suggesting things are not as bad as previously expected.

So if we believe the documents they issue, the debt instruments seems relatively safe. The share buyback is also an encouraging sign, even though I will be even happier if the chairman buys with his own money too.

These numbers should be quite familiar to most who have taken a look at YZJF. But obviously there is some doubt surrounding them which is why the shares are currently quite discounted. 

So how much would you trust that indeed only 2% of their loans are "non performing?" And how do they define "non performing?" 

If you were to lend someone money, I'm pretty sure the first question you would ask is who you are lending to. Otherwise, how do you even assess the risk? Since this information is not quite available here, I think YZJF investors are taking a pretty big leap of faith in the company's management. Which is perfectly fine of course if you are convinced.

I do think that it would be quite ridiculous if more than half of their loans are bad. But again, its hard to tell because you do not know who the debtors are.

The company actually defined what is non performing in their investor deck and quite a few more places.

“*A loan is classified as non-performing once principal payments are passed due vs industry standards of more than 90 days”

Honestly, it’s great to see comments like this floating around. I am not trying to be sarcastic about it but it does show some preconceived notions and details being overlooked when looking at this company. That is part of the reason that I feel creates inefficiencies in the pricing of the shares. As these information asymmetry gets eased over the longer term, it can revert to fundamentals. Of course, whether that’s up, flat or down will be known in a few years I suppose. Hopefully it’s up.

Anyway, I want the share price to stay here longer. It would be great if they could complete the buybacks all at the current price. That would be simply awesome and the greatest shareholder value creation I have seen via share buybacks.