Yangzijiang Financial Holding

[Big Toe]

DI is not improving but the reduction in size have made the rot a whole lot smaller and less significant. Personally, not too worried about DI. At some point in the future, DI will likely turn into a bright spot.

What is more worrying is the maritime fund will likely invest in commercial vessels and if Trump goes ahead to impose tariff each time china made ships call on US ports, ship owners will think twice about placing a new order/leasing/financing. It is very difficult to see how this will play out but once imposed, the next US administration is unlikely to reverse its course.

On a more positive note, the maritime fund is still small, having a large cash hoard enables them to be nimble and flexible. When one door closes, another one will open.

[Bluechipfan]

Business and economic environment become very volatile because of MAGA. I do not envisage good business prospects for non US businesses especially Chinese in the short term. Hopefully YZJF can continue to pay baseline dividend of at least 3 cents for the next few years before things become better. Yield on cost 9%.

[Squirrel]

Glad to see a lively discussion going on still. I guess the gradual conversion of the DI to cash lays to rest the prior discussions on how much these were worth in the first place.

What I have observed in this episode is how much management is focused on creating value for shareholders is really a huge driver of value, and probably a big qualitative factor to look out for.

Within a span of a year or two, the amount of share buy back is unprecedented (from my point of view). The choice to benefit all rather than taking the vehicle private. The discipline to hit targets to diversify its portfolio out of China. The initiatives and drive to increase shareholder value is priceless.

I am not sure how many of you are holders here, but congrats to those who are.

But as I realise nowadays, the exit is tougher than the entry. Hope to see some discussion on that instead. Is it now? Or is it later?

[CY09]

At the current price of 63 cents at 0.6 times price book, the discount is still large in my view.

In a limtan webinar, CEO has guided that this year's earnings will be the same as last financial year despite there might not be as much FOREX gains and government grants. If I read between the lines, it could be due to write backs of their credit allowance as they start to redeem the DIs. Taking CEO Ren true to his words, we can expect 3.4 SG cents again this year. Holding on this stock will be a 5% yielder with book value growing because YZJFH is starting to redeem its China DI and transfer part of the fund to Singapore (YZJFH is trying to maintain a 50% China, 50% Singapore; so as more DI is redeemed and on SG side dividend is disbursed, the China side portfolio gets larger than 50%).

Second it is worth noting that YZJFH only utilised $7.4 million in credit provision when they redeemed $492 million in China DI, so using this as base, it is likely the actual credit provision utilised is 5-8% range. This mean a chance of $110 million in credit allowance being wrote back as it unwinds the portfolio

There are only a handful of stocks that has such a good investment return, the other being United Hampshire US REIT.

So at 63 cents, I wont be selling. My target is 0.8 times price book value, this places it at 90.5 cents where I would start offloading or if good opportunites where I could deploy my capital appears. I am evenly concentrated in both United Hampshire US REIT and YZJFH, so I wont sell YZJFH to go Utd Hampshire otherwise I have to live and die by the sword of another stock (my current experience is Alibaba)

[weijian]

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.

Hi dreamybear,

I think one can imagine YZJFH is a closed end fund. So if one add in liquidation costs and lack of control "dis-premium", then it should be trading at a discount to NAV. But, Mr Market can get ahead of itself and assign closed end funds a market value, that is a premium to NAV. When that happens, it means the performance of the fund will be so good that Mr Market has priced in the future outperformance. So leveraging the same line of thought on YZJFH below:

- YZJFH's current investments are giving a blended ~mid single digit ROE and that isn't too far from the risk-free rate, isn't it? So shouldn't it be trading at a steep discount?

- Let's say that an investor requires 10% returns, ie another 5% as premium to take on equity risk, then this would mean that YZJFH would be roughly valued at 0.5x NAV to hit the return demand. If YZJFH increases its ROE from mid single digit to high single digit, while risk free rate doesn't change capping investor requirement at similar ~10%, then the share price should automatically adjust upwards to reflect that.

- So end of the day, my personal conclusion is that ROE needs to improve over the risk free rate. For a start, the protection of "equity" (denominator) would be key so that the return (numerator) has a future chance. That said, one needs to be under no illusion that there will not be permanent impairment of some equity from this property crisis. But of course, all of us have different ways to calculate "our margin of safety" here.

Just less than a year ago, VB dreamybear was wondering what had to happen for YZJFH to trade at a better valuation. Back then, I was none-the-wiser but I gave my 2 cents worth nonetheless. If I look back - ROE is now slightly higher and risk free rates are slightly lower. But both can't really justify a ~100% increase in share price over the past year. So I am still none the wiser, one year on - I can't figure out why Mr Market re-rated it. Maybe Seth Klarman got it right as he was the one who mentioned that "cheapness itself is a catalyst". But these days, he hasn't been very popular

The jockey has met its promises and proven themselves. Maybe this is the real secret sauce as VB Squirrel has mentioned, beyond all the quantitative numbers. Although the quantitative is crucial to provide the basis for what the company is probably worth if it were liquidated.

Now, this jockey (Chairman Ren) has 2 companies (YZJSB and YZJFH). In most of the time in the last 1 year, Mr Market had consistently rewarded those who bet on the gap between YZJSB and YZJFH to widen. And it is only in the recent last month that the gap has started to close. I wonder what is the risk-reward of betting on this gap moving forward?

[Squirrel]

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.

Hi dreamybear,

I think one can imagine YZJFH is a closed end fund. So if one add in liquidation costs and lack of control "dis-premium", then it should be trading at a discount to NAV. But, Mr Market can get ahead of itself and assign closed end funds a market value, that is a premium to NAV. When that happens, it means the performance of the fund will be so good that Mr Market has priced in the future outperformance. So leveraging the same line of thought on YZJFH below:

- YZJFH's current investments are giving a blended ~mid single digit ROE and that isn't too far from the risk-free rate, isn't it? So shouldn't it be trading at a steep discount?

- Let's say that an investor requires 10% returns, ie another 5% as premium to take on equity risk, then this would mean that YZJFH would be roughly valued at 0.5x NAV to hit the return demand. If YZJFH increases its ROE from mid single digit to high single digit, while risk free rate doesn't change capping investor requirement at similar ~10%, then the share price should automatically adjust upwards to reflect that.

- So end of the day, my personal conclusion is that ROE needs to improve over the risk free rate. For a start, the protection of "equity" (denominator) would be key so that the return (numerator) has a future chance. That said, one needs to be under no illusion that there will not be permanent impairment of some equity from this property crisis. But of course, all of us have different ways to calculate "our margin of safety" here.

Just less than a year ago, VB dreamybear was wondering what had to happen for YZJFH to trade at a better valuation. Back then, I was none-the-wiser but I gave my 2 cents worth nonetheless. If I look back - ROE is now slightly higher and risk free rates are slightly lower. But both can't really justify a ~100% increase in share price over the past year. So I am still none the wiser, one year on - I can't figure out why Mr Market re-rated it. Maybe Seth Klarman got it right as he was the one who mentioned that "cheapness itself is a catalyst". But these days, he hasn't been very popular

The jockey has met its promises and proven themselves. Maybe this is the real secret sauce as VB Squirrel has mentioned, beyond all the quantitative numbers. Although the quantitative is crucial to provide the basis for what the company is probably worth if it were liquidated.

Now, this jockey (Chairman Ren) has 2 companies (YZJSB and YZJFH). In most of the time in the last 1 year, Mr Market had consistently rewarded those who bet on the gap between YZJSB and YZJFH to widen. And it is only in the recent last month that the gap has started to close. I wonder what is the risk-reward of betting on this gap moving forward?

The answer to me is the following.

Majority of the market was grossly mistaken about the true value of the DI and the fact that the most problematic ones are left with YZJ SB. There were worries that the Debt Instruments were going to zero. There was a lack of understanding in what these instruments were, where the instruments stands in terms of seniority of claims, and how the seniority would ensure a high recovery even if defaulted on. There were consistent comparisons to PB ratios of banks when banks are holding a total different mix of assets.

As time goes on, as the instruments get slowly converted to cash and sent offshore (which was a plan that was already ongoing given the company had already made full provisions for withholding tax required for sending dividends offshore), there is the realisation that this company’s assets are really worth what it shows on the books. Especially when total cash balance approaches market cap before this rally.

I do think stewardship is important, as are the SSBs, but those have been announced and is known to everyone.

Thus to me, closing the gap is just a matter of the investing crowd finally realizing how cheap this stock is trading with the slowly increasing cash balance and the realisation of how impressive the dividend yield can be if the ROE normalizes with the cash on hand being invested. It was plain information asymmetry that caused the crash and opportunity, and allowing those who pore through the disclosures, spin off documents and understanding of its portfolio a chance to jump in.

[CY09]

Regardless, I am interested to know what they can do with their huge pile of cash sitting in Singapore money markets.

I prefer they resume their share buybacks. It is worth a lot to existing shareholders, who have held on, if the company still does buybacks. At SGD0.67, that is about 0.6 times book value. If the DI have indeed been conservatively provisioned, this means there will be NAV appreciation as the DIs are redeemed and cash sent to Singapore.

[Big Toe]

On the huge pile of cash sitting on the sidelines. I'd rather they not do aggressive buybacks, 2 reasons.

1. The best time for buy backs is over, they did purchase a significant amount when share price was much lower. Higher price lower value add to the shareholders.

2. It would mean also less bullets for opportunities. Great opportunities will arise for those who wait. Trump is creating a lot of uncertainty, and chaos is a friend of the patient investor. You do not need to invest all your cash all of the time. Sometimes it is good to have a significant portion just sitting on the sidelines, waiting. Much like buffett. Waiting for something and sitting around intending to do nothing are 2 totally different things.

[weijian]

A few days back, SGX's market update shown that YZJFH actually has the highest YTD NIF (net institutional flow) among the non STI components. Well to be honest, I have no idea how institutional flow is identified or how accurate it is. But for what it is worth:

- Considering ADT (average daily turnover) value of 13mil and over 9 weeks of the year (9weeks x 5days = 45days), it translates to 45*13mil*50cents (avg stock price) ~ 290mil worth of trading value.

- YTD NIF of 82.8mil translates to close to 30% of the total trading value. Is that significant or not? I have no idea.

Institutional Investors Book Highest Net Weekly Inflows Since December

In the first week of March, Singapore stocks recorded S$39 million in net institutional inflows. This marked the first weekly instance of net buying by institutions across the local market since the last week of January, and represented the highest weekly net inflow since the shortened trading week ending December 27.

https://www.sgx.com/research-education/m...ly-inflows

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

@BigToe,
It's interesting to know that you got onto the bandwagon too. Make sure you wear a durian T-shirt during AGM so that some of us can recognize you.

While some of us like to try to "time the market" but considering Chairman Ren has a billion at his disposal, I reckon he is probably less flexible than most of us. Therefore, I don't really think there is objectively a best time for any future SBB. As the saying goes, price is what you pay and value is what you get. So if SBB is done today, what value are shareholders getting?

A quick back of envelope calculation --> YZJFH is doing ROE~6% (exclude FX/gov grants) and with P/B~0.6x, any SBB is delivering an effective 10% return. While this 10% is smaller than the 14% I calculated 6 months ago, but I think it is still pretty ok. I am not sure if the existing investments like private credit and maritime investments can best that. Also, if we assume YZJFH cancel all their treasury shares (which they have already done so once), the "effective ROE" will increase if future earnings are higher (and there is a good chance for this to happen as it deploys more cash away from cash mgt).

The poster child for historical/ongoing/future SBB and improved future earnings creating a twin ballast to shareholder value creation is Apple Inc over the past decade. I judge every SBB action using Apple Inc as the reference template.

[Big Toe]

@weijian
I got onto the bandwagon long long ago. If you have read my earlier posts on YZJ and YZJ F, I got in earlier than most if not everyone. When YZJ was sub $1. After the split, I rebalanced by reducing YZJ and adding more YZJ F. Timing was completely off but it needs to be done. More and more funds were utilized as YZJ F had kind of a free fall. Yes, catching a falling knife but as the prices was stagnant at near the bottom, I added to my position.

Back to the cash pile. Size is important. It would make little sense to do SBB and chip away the cash even @ effective 10% return. To be ready when the moment arrives. Here's why. Previously during covid I had the chance of a lifetime to own a very sought after small commercial retail property @ half the intrinsic value and I knew the owner and the place is somewhere I am extremely familiar with. While I had some assets, it was illiquid and liquid assets such stocks were not doing too well. I asked the banks and banks refused to borrow as income was hit. The banks also did not want to have illiquid assets as collateral.

So I missed the chance of a lifetime. Sure there will be opportunities later on, but it will never beat this missed opportunity.
Take away is to be ready and I make it a point not to depend on banks too much. There was another occasion where a bank decided to increase interest rate to board rate the next month for ridiculous reasons, thank goodness I was prepared and paid off the entire loan. I can completely understand why YZJ F is keeping a pile of cash.


PS.
to give more context to why the owner was selling, there were some regulatory changes and his business can no longer operate at the retail location.
His new location is much bigger and much more expensive, business was hit by covid, he needed cash to tide over and for the new premises.