Yangzijiang Financial Holding

[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.