Saturday 25 June 2022

Yangzijiang Financial Holdings (YZJFH): Decent entry at Current Moment

Other than the listing of Nio, SGX has added another company called Yangzijiang Financial Holdings. The company belongs to the former financial arm of Yangzijiang Shipbuilding, which is currently an STI blue chip stocks. The latter had spun off its financial arm to realize its value.

However, the market has sold down the stock continuously and in my view, the company is now in a value range to buy and accumulate. My view is that the company is worth 72 cents per share. 

Balance Sheet of YZJFH

YZJFH holds no debts, its assets are mainly made up of debt instruments in China, equity funds and cash. It is an investment company.

Based on Yangzijiang shipbuilding's circular, YZJFH has a net asset value of RMB 20 billion ( approx SGD$4.14 billion). This is the first indicator of it being undervalued. At current market value of SGD$1.7 billion, the company is only worth 0.41 times of its book value.

However assets is worth nothing if it is unable to generate profits. Fortunately for YZJFH, it generated RMB 1.75 billlion (approx SGD$363 million). This means the company's price earnings is now 5 times which is pretty low

Future Prospects and Dividends

YZJFH is now venturing into Singapore and has set up an investment arm here. Given the continuous inflow of rich Chinese nationals here, it is probable that the Singapore's arm will start to reap profits as there is an opportunity to manage such rich families assets. It plans to set up a $1 billion fund here.

YZJFH has a dividend policy of distributing 30-40% of its earnings as dividends. Given its high earnings, I am expecting a forward dividend of 2.5-3 cents per share each year.

At current share price of 43 cents, the projected yield is 6-7%.

What I am Doing

Given that its debt free and is offering 6-7% yield, I will be selling some of my holdings in SIIC in favor for YZJFH. This is because I have limited cash in buying new stocks. While, SIIC is  offering 7% yield, it is highly leveraged at 2 times debt to equity and has the same exposure to China. The perceived lower risk of YZJFH because it is debt free and has investments in multiple china industries, it is a better investment.

My fair value for YZJFH is as a 3.5% dividend yielding, valuing its fair value at 72 cents.

The management has started a share buyback program of $200 million to buy back 395,058,922 shares. This indicates, to them, any value approximately below 51 cents is undervalued and will likely be purchased by the company. This points to a short term target price of 51 cents. 

Hence at 43 cents, I do feel the company has lots of value. I will commence my accumulation of the YZJFH shares next week to make it one of my core holdings as replacement to SIIC.

Saturday 4 June 2022

Why Tencent as a Company Looks Very Expensive Now

Tencent released its 1Q results and its core business performance does not look good. What has supported its earnings are selling stakes in its past successful investments in other companies

Effects of Asset Sales

Based on 1Q results, we can see excluding the gains from selling part of its holding in Sea Holdings, Tencent's core business only made about RMB 11 billion. Similarly in Q4 of FY 2021, if the effects of its asset sales are excluded, Tencent's core business earns about RMB 10-11 billion. The 2 latest quarterly results reflects the new normal for Tencent post China's government regulations.

What is propping Tencent is its continuous monetization of past investments. Fortunately, it has made numerous good investments such as in Tesla and Sea Group, hence despite these 2 fall in share prices, Tencent's investments in them are still in the green. However, share sales is not a recurring item and eventually Tencent will run out of sales to prop up its net income.

With the tech bubble now deflated, Tencent's ability to report large sales gain is diminished.


Tencent's core business is earning about RMB$44 billion with China's regulations slowing. However, the Chinese government has not vowed to stop regulating its tech companies. Hence it is cautious to presume that Tencent's profits wont grow despite revenue growth in China, mainly due to more regulations eating into its margins.

In this way, it is safe to presume that its core business is worth about 30 times P/E due to resiliency in the media business as a leader and the no 2 in cloud services, though Huawei may overtake it as Huawei is the CCP backed cloud provider and not Alibaba or Tencent who has been alienated by the Chinese government in procuring such services.

This puts Tencent's core business at a value of RMB $1.32 Trillion or HKD $1,560 Trillion. Its stake in major companies such as in Tesla or Sea Group are only about RMB$700 billion post the recent share decline and sales in Sea Group, meaning I will add about HKD$850 billion.

Based on a sum of parts, Tencent is worth about HKD $2.4 Trillion. Tencent's current market value in Hong Kong is HKD $3.45 Trillion. Hence, I expect a 30% decline in Tencent's share price from HKD $359 to about HKD $250.

Tencent currently is an expensive stock. Unless China stops its regulations on Tech companies which are hurting their margins, it is difficult for Tencent's core business to grow and command a good valuation. 

Given how the communist party prioritizes control, it is unfortunate that the good management of Tencent is hampered by their own government. I expect further share decline when Tencent releases its Q2 results which will be another negative profit growth with no share sales.