Yangzijiang Financial Holding

[dreamybear]

Despite the significant NPL increase, the share price barely moved today. Does this mean :
- the NPL increase has already been factored in by the mkt prior to the announcement ?
- mkt is factoring recovery from China's opening up ?

[boonsong]

Despite the significant NPL increase, the share price barely moved today. Does this mean :
- the NPL increase has already been factored in by the mkt prior to the announcement ?
- mkt is factoring recovery from China's opening up ?

The NPL figures pre-announcement are simply too low to be believe. So the current figures are more realistic. However my concern is the timing of the announcements.

That, and the lack of buying from Mr Ren Yuanlin's part, are my concerns.

[weijian]

Despite the significant NPL increase, the share price barely moved today. Does this mean :
- the NPL increase has already been factored in by the mkt prior to the announcement ?
- mkt is factoring recovery from China's opening up ?

When FH was spun out, ~2.8bil of bad debt stayed with the parent which indicated that NPL was ~10%. That would probably be a realistic base figure to start with, together with 2021 reported NPL of 16%.

So when 1H22's NPL of 2% came out in Aug2022, compared to its probable base rates of mid teens, Mr Market probably thought this low single digit NPL wasn't realistic and sustainable moving forward, especially with things getting from bad to worst in China. As a result, the share price decline continued and 3months later, 3Q22 results show that sceptism came true to an extent.

[CY09]

YZJFH has to be firm in dealing with this deliquencies. They have collateral and it is time to monetise via auction/tender/force selling.

In its 2Q presentation, it claims its coverage ratio for land/building is 2.3 times the principal. Evergrande has had its assets sold off within a year of being in default, its lenders have recovered 55%-90% of the value through tenders. Hence YZJFH should do the same to recover the principal of its debts. The interest of its shareholders should come before the country and who cares if such acts continue to plummet China's debt crisis. This is how market works.

I am hopeful that YZJFH will provide an update of how it is handling the collaterals to the debt instrument in April 2023. This would mean 6 months has passed from the announcement yesterday.

If the answer during the AGM is that they are giving their debtors a grace period despite being due more than 6 months, it is a red flag that the mgmt feels the collateral is not enough to recover the principal. This is because the safeguard of collaterals should now kick in to recover cost. It would be good as well if the mgmt annoucnes their maturing debt has been successfully repaid.

Currently they are holding 56% of portfoilo in debt instrument. This is risky but is a good step in the reduction from 82.6% in 2Q2022. YZJFH clearly has to stop taking too much risk in the Chinese debt market and go totally risk off. This is why they are branching to Singapore and hopefully they would fulfill the 25% of investments in Singapore by end 2022. I hope for it to be a clean transfer of cash with no intra group loans.

[CY09]

Depsite a reported NAV of $1.08 and at share prices of $0.345, YZJ Finance has ceased doing share buybacks. This despite being able to generate a 200% returns for every share purchased at market price.

Its either YZJ Finance knows its reported NAV/book value is subject to further impairments which will write it off or that cash extraction from China to Singapore is very difficult despite the multiple licenses granted. It is amusing why YZJ finance has totally cut off share buyback when it did purchase shares at this price before the "self-imposed" one month blackout before the 3Q results. I sincerely hope SBB resumes because it creates a lot of shareholder value

[weijian]

Besides its debt finance and equity investments, YZJFH eventually hopes to transit a big portion of their assets to the fund management business (FUM), with a ratio of 70% own capital and 30% outside capital. FUM is an incredibly sticky business when you are big and well established. But unfortunately, it is also an incredibly competitive business as anyone with money can buy a ticket (and yes, YZJFH bought such a ticket as well since they have money). So it will probably take some time for YZJFH to build its track record before it is able to commit less than the 70% own capital.

All these means that capital is critical to expand its future business. We have to recognize that every dollar of SBB means depriving capital for the future FUM business. Of course, unless they have the capability/intention to place the SBB shares out in the future (like Keppel Corp intending to use shares as currency when doing acquisitions, or ChinaSunsine which managed to place out some of its SBB shares). As such, I would like to believe that there has to be a balance between the capital committed towards SBB and seeding FUM. One has to decide whether to trust the jockey to find that balance.

[Squirrel]

Depsite a reported NAV of $1.08 and at share prices of $0.345, YZJ Finance has ceased doing share buybacks. This despite being able to generate a 200% returns for every share purchased at market price.

Its either YZJ Finance knows its reported NAV/book value is subject to further impairments which will write it off or that cash extraction from China to Singapore is very difficult despite the multiple licenses granted. It is amusing why YZJ finance has totally cut off share buyback when it did purchase shares at this price before the "self-imposed" one month blackout before the 3Q results. I sincerely hope SBB resumes because it creates a lot of shareholder value

I think you might be thinking too much, and maybe a bit too narrow in your deduction by zeroing down to only two different outcomes.

“Its either YZJ Finance knows its reported NAV/book value is subject to further impairments which will write it off or that cash extraction from China to Singapore is very difficult despite the multiple licenses granted.”

Couldn’t it be simply that the company has material developments to announce?

Another post of yours as follows that seems the announcements were unrelated to a 3Q update and SBB has dried up and again speculates on certain specific reasons for it.

The announcements the company has made were unrelated to a quarterly update.

In addition, it seems share buybacks has dried up, which underlines my belief that the company had never intended to do ashare buyback seriously. It seems they are only going to do share buyback when share prices falls to all time lows in the 33 cents region. I still expect the 10% mandate to be used up by April 2023.

But it is definite a cancellation of the current 6.6% of share buyback to renew the 10% mandate is out.

This could be due to a secondary factor that China is restricting the movement of cash outwards from China' yes, YZJFH has recently obtained the license through intra group transfers but my sensing is that it is merely a facade. Otherwise, I beleive YZJFH would have been actively using the funds to do share buybacks while maintaining a SGD $1 billion cash kitty as promised. A recap is that the market is pricing the company only at a P/B 0.31, this is really cheap. If the mgmt now headed by a group of ex civil servants know that the accounts/assets are real, buying their own product at 31% of its price would have been done.

I am not saying that you can’t speculate, because that’s what all of us do to as high a degree of certainty as possible, with as much evidence gathered as we could.

However, sometimes the most simple plain truth might be in front of us and we might just miss the forest for the trees.

Sometimes it might be just easier for long terms holders to not overthink it and not keep track of it too closely. Just my 2 cents worth.

[Bluechipfan]

First of all, it has been a while since I am here and I wish everyone a very huat rabbit year going forward. YZJF is the second S-chip that I invested heavily. First one was China Sunsine [CS] which I still have 100k shares at the average cost of 27 cents post split. I have held 500k shares of CS at one point before gradually exit most of it just prior to the announcement of split.

Pardon me for the seemingly unrelated information above, but I find it kind of relevant because as with CS, YZJF is also simply viewed negatively by some quarters with the label of S-chip. Some people just don't trust S-chip but I hope YZJF can turn out to be another CS for me. It wasn't easy investing in S-chip because the negative opinions/views on S-chip can be overwhelming at times. It's hard to ignore them and sometimes it make people, who are vested in S-chip, started to have self doubts. I still remember some comments on CS such as 'it's high risk, the factory could be on fire' or something to that effect.

For YZJF, what attracted me to it was the historical high profits and generous dividend payout pre split [YZJS]. Once the management undertake the dividend policy of at 40% payout NPAT, the only question I have to ask is how likely the profits will continue and sustain post split as YZJF. After seeing their management recruitment and insiders buying post split, I decided to build my position in YZJF. If Ren and the management can build YZJS from scratch in the past, Ren with his management can now also build up YZJF. This is track records. They just need time and I figure that while waiting, the risk can be mitigated with the dividends and the relatively low cost of purchases due to the suppressed share price. My average cost is now about 38 cents and I reckon that if the dividend is between 1.5-2 cents per year, not only it will bring down my 'average cost' correspondingly, the share price will bound to surpass 40 cents too and/or even more within 2 years. I think the cost and the risk is commensurate in this case and 2-3 years is reasonable timeframe to have a even clearer picture one way or another.

[weijian]

hi bluechipfan,

Thanks for your further insights into YZJFH. The skies seem to be clearing with the CCP sounding pretty decisive on supporting the property sector, where a big portion of YZJFH loans are either directly/indirectly related. In addition, share buy back has ceased since ~3 months ago.

The direction that Chairman Ren and his team wants to go, is pretty clear. But it is not easy and so execution is the key. So yes, it is about track record and how much the past track record will be indicative of future prospects.

I like to quote Seth Klarman over here - "High uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen. Investors frequently benefit from making investment decisions with less than perfect knowledge and are well rewarded for bearing the risk of uncertainty"

[CY09]

Company wise, I hope YZJFH is smart enough to utilise CCP's dovish policy for the property sector to cash out via waiting for the debtor company to raise funds to redeem the debt.

Risk wise, I feel the China property sector is going to be zombie like where they will muddle through for decades.

With the cash, I hope YZJFH converts it to cash, send it to SGD without being an intracompany loan between SGD and the China subsidaries. Singapore is beneftting due to the rush of China's wealth from the mainland to here. Similarly, YZJFH should move its money and position here instead.

As capital allocators, the fact that their own company is valued at 0.4 times price book means even if they cant seek worthy investments here (which is highly unlikely), they can proceed to allocate more capital for buybacks and enhance shareholder value.

Yes, the chines property sector is still dangling a juicy interest returns for investing in it, but given the declining demand for Chinese property, strict immigration rules in Mainland China, going after them is like picking pennies in front of a steam roller. I used to have that naive thinking of looking at the undervaluedness of S-chips in terms of Price earnings, P/B, dividends and was hit by it. A painful experience investing in Chinese companies. There is a reason why the returns presented are high