Yangzijiang Financial Holding (YZJFH) results are relatively muted- interest income was slightly lower due to the shifting of cash from China to Singapore rendering it not invested. Earning per share wise- the first half saw 3.45 cents earnings. I foresee the full year earnings to be 7 cents.
Based on its dividend policy, this means at the end of the year, an investor should expect a 2.5-2.8 cents dividends. At current share price of 39 cents, this means a 6.7% dividend yield
Risk- High exposure to China Real Estate Sector
From its PowerPoint briefing (pages 24-27), YZJFH has about 43% of its $2.5 billion PRC debts in China's real estate and construction sectors. This works out to $1.07 billion exposure to China's property sector.
As a proportion to its s$4.5 billion asset, YZJFH has a 23.7% exposure to this sector. This is quite a large exposure to the declining property sector that China is trying to rescue.
However, one positive is that most of the debts mature in a year time. I hope YZJFH is prudent and not renew such debts to China's property sector. Given that YZJFH has a high collateral to the sector where the companies pledge two time the loan amount; if the China's companies are unable to pay up, I hope YZJFH will force sell these companies' assets. There is just too much exposure
Explains the High Dividends
Given the high exposure to China's property sector, I think this explains why its dividend yield is at 6.7%. China's national bank, ICBC, has about 31% in loan exposure to China's property sector and yields 7.4% in dividends.
Company Share Buyback
Despite the approval by shareholders for YZJFH to have a s$200 million share buyback this FY. The company has been very slow in executing it. In fact, YZJFH has only utilized $9 million in share buyback.
On 12 Aug, the company has hastened its share buyback and bought $1.5 million worth of shares. From now to the end of April 2023, YZJFH has the capabilities to make $1.3 million in share repurchases each trading day under its mandate. CEO Mr Toe has been highlighting in presentations how the market has been undervaluing YZJFH.
As an investor, I will be judging him based on his management team's execution in their share buyback. Shareholders have approved the mandate for him to do a large amount of buybacks; however the management has been extremely slow to deploy. As seen in the slides, YZJFH has s$480 million in cash in Singapore, it is definitely able to execute a buyback of s$200 million anytime as its fund management business requires only s$250 million this year.
The share buyback execution from now to the end of this FY will be key to show if Mr Toe does mean his words. As the trading volume is 4-5 times its buy back volume, there is no reason for YZJFH not to do buybacks if their CEO does feel the company is undervalued.
I have started switching some of my funds from Sinopec and Tencent Music to YZJFH. This is to maintain my exposure to China at a limited proportion. To me as a financial company, I do feel YZJFH is undervalued as well. Basing on comparable to ICBC and CCB, YZJFH smaller exposure to the China property sector and that its results are audited in Singapore should lend credibility to the company's assets.
I am valuing it to be a 5% dividend company and have an internal price target 60 cents at a future dividend of 3 cents. Hence explaining my reallocation.