Yangzijiang Financial Holding

[CY09]

Hi Jin,

that is a good question. You may wish to field it to their investor relations at: public@yzjfin.com

They could provide you an answer why they their speed is now only at 6 mil share buyback per day when trading volume is about 40-50 million shares.

[BlueKelah]

The company has been doing aggressive sharebuyback since the release of FY results, with at least 6 million in shares bought back during each trading day

With a mandate to buy back 395 million shares (10% of 3,950 million shares), it looks like the company will max its mandate in another 60 trading days time. However, the value of the comoany has plunged 10% and it might be due to a major shareholder disposing its stake. The company's aggressive share buyback does seem a good sign that they find it undervalued

i don't quite understand why they are not even more aggressive on the buyback, why buy only 6mil shares when they can easily buy twice/thrice of that?

The slower the buyback the less upward pressure on prices. 

other reason could be lack of cash flow or they are just supporting the stock price so as not to let it fall lower etc.. 

They could also be buying back stock to dispense as employee stock options later down the road.

[Squirrel]

The company has been doing aggressive sharebuyback since the release of FY results, with at least 6 million in shares bought back during each trading day

With a mandate to buy back 395 million shares (10% of 3,950 million shares), it looks like the company will max its mandate in another 60 trading days time. However, the value of the comoany has plunged 10% and it might be due to a major shareholder disposing its stake. The company's aggressive share buyback does seem a good sign that they find it undervalued

i don't quite understand why they are not even more aggressive on the buyback, why buy only 6mil shares when they can easily buy twice/thrice of that?

The slower the buyback the less upward pressure on prices. 

other reason could be lack of cash flow or they are just supporting the stock price so as not to let it fall lower etc.. 

They could also be buying back stock to dispense as employee stock options later down the road.

Personally I don’t think it’s a lack of cashflow. If you read into the announcement, it states that they have already a lot of cash in SG, more than twice the required amount for the $200m share buyback program.

I believe the way they are conducting the share buyback is very much in lieu of the nature of how they go about their main business. They are investment professionals. They seek not to directly buoy up the price of the shares with big buyback volume. They seek to buy back shares at the lowest price possible. And that’s evident in the slow but consistent volumes after the share price hits below 40 cents after release of results (after the restricted period before results).

I am happy with how they are doing it now. I have a limit to my allocation so I can’t keep adding on the way down or more at this level. However, them buying back shares at this price has a knock on effect akin to “averaging down” in my stead. It’s buying back at one third of NAV! I will be really really happy if they completed the share buyback all between $0.36 to $0.40. That’s going to help the fundamental value of my holdings significantly.

[dzwm87]

@Squirrel: I'm curious - they have a good track record in debt investments within China but what is their competency outside of China? What is the probability that all of the funds in the pipeline will hit home run given it's across different fund types and strategies?

How will you value such a business given it's an investment management company of various funds that are likely going to be marked to market?

[CY09]

Hi dzwm87,

There are two aspects to look at for YZJFH Singapore investment management segment. Firstly, it is the marked to market aspect where the portion of funds self funded by YZJ has to be marked to market.

The second aspect, that is harder to value but uniquely Singapore, is the setting up of family offices and seeking foreigners to invest a few million in YZJFH's Singapore funds so as to apply and obtain a Singapore Permanent Residency. The latter is much sought after residency status by foreigners especially PRCs. I have seen many local fund managers set up funds with a shelf life of 15 years and closing with little portfolio gains. Their main aim is not to grow funds but to help their investors have a SPR for 10-14 years while earning a 2% annual fee; Singapore government becomes rather strict in renewing SPRs after 5+5+2+2 period.

If YZJFH goes down this route where it creates funds, use half of its own cash to finance, the other half from PRC investors, the business is a recurring fund mgmt model similar to ARA's. For me such a segment is worth 25-30 times P/E.

[ghchua]

Hi CY09,

Unless YZJFH can scale up very fast like up to ARA size, otherwise I would not think that it can even trade close to NAV, let alone 25-30 times PE.

One can take a look at TIH, which also has both investment and fund management businesses as well. The stock had persistently trade below 50% of its NAV for quite sometime. Unless YZJFH can prove otherwise, I think we should be realistic about its valuation.

[weijian]

Fund Management is a pretty scalable business. But that doesn't mean every fund manager can scale easily. The big ones scale fast because of a good historical track record and they have the established distribution capabilities (where to put the capital). No one gets fired for giving capital to the biggest fund managers, especially when everyone is doing the same thing.

In addition, the days of putting up single digit percentages to invest along with your investors in a fund you manage are over. This was one consistent insight from ARA and Capitaland Investment. So if an ARA pops out now, even though you get some help from the HK Superman, the growth trajectory expectations need to be tempered.

But as always, to paraphrase Howard Marks - Are things too good to be true? Are things too bad to be true?

A lot of bad news are coming out from China. If "This Too Shall Pass", what are ways to profit from this in terms of time arbitrage?

[CY09]

Scaling isn't that hard in Singapore. This is because of Singapore's attractiveness and EDB's Global Investor Scheme to attract PRs.

Lets assume the fund secures 50 rich prospective foreigners each year who want to a Singapore PR and places s$5million. Singapore is strict and only issues them a 5+5+2 years PR status and then refuses to renew it. The fund will have a rolling stock of 600 prospective PRs it has to service. Total AUM is s$3 billion. A 2% management fee is s$60 million in revenue and given this is a CPAEX light industry, it is likely the fund will have s$40-50 million in profits. A 25 times P/E would give a billion dollar valuation

However, this relies on its ability to have connections with the rich who are interested in Singapore. Chairman Ren has this special connection to the China community. They will need established fund managers which YZJFH has recently secured in Sean Low and CEO Mr. Toe.

This is in addition to its services of offering advisory for family offices and that the company has to invest its own funds (s$2 billion in Singapore and s$2 billion in China). The valuation for these 2 segments is up for discussion.

[Squirrel]

@Squirrel: I'm curious - they have a good track record in debt investments within China but what is their competency outside of China? What is the probability that all of the funds in the pipeline will hit home run given it's across different fund types and strategies?

How will you value such a business given it's an investment management company of various funds that are likely going to be marked to market?

Hi

I have went into this on how I feel the business should be valued on my blog. 

https://www.thesquirrelsdrey.com/post/ya...uld-you-do

Might be easier to reference from there. All being said, that valued the company like a “listed fund”. It still does not include the value of being an investment manager for external funds that the company is working towards. That in itself is what I call free optionality.

[Squirrel]

Hi CY09,

Unless YZJFH can scale up very fast like up to ARA size, otherwise I would not think that it can even trade close to NAV, let alone 25-30 times PE.

One can take a look at TIH, which also has both investment and fund management businesses as well. The stock had persistently trade below 50% of its NAV for quite sometime. Unless YZJFH can prove otherwise, I think we should be realistic about its valuation.

I don’t think you can compare like for like between T1H and YZJ FH. Reasons are as follows.

T1H is really small. Just circa $50mil market cap versus the current $1.4bil for YZJ FH. It’s well documented that large companies command a premium in multiples over smaller ones due to perception of less risk.

T1H is invested in private equity while at current stage, YZJ FH is invested in short term first ranking onshore notes which was sieved out for even higher quality by virtue of those in legal trouble being retained in YZJSGD. Non performing loans stand at 2%. A more comparable name would be Hotung versus T1H. But even for two similar private equity fund managers, T1H is much cheaper on paper. The next point details why I think that happens.

T1H is really really illiquid. Making it tough even for a retail investor like me to build a position. Hotung is just illiquid, but still just enough for small investors like us. There is a concept of liquidity discount which explains why private equity is typically traded at a discount from listed stocks. The amount of illiquidity on T1H makes it much more private equity like than the listed stock it’s meant to be. This is why I believe T1H is much cheaper than Hotung. And why I believe Hotung should be cheaper than YZJ FH (both from product focus and liquidity standpoint).

Putting all the above aside, T1H has a pretty large cash balance form a preliminary glance through the balance sheet. If one has the reasons to believe the company might distribute that anytime soon, one should buy heavily into T1H. But as with any value traps out there, minority stakeholders can’t control where the cash goes. If there is no indications that the cash might get distributed, it’s not going to affect perceived value significantly.