Saturday, 3 September 2022

Yangzijiang Financial: High Returns and Clarity on its Investments

Yangzijiang Financial (YZJFH) had released an announcement clarifying its assets and its composition. Below are the key points:

1. Investment Portfolio: 57% in Debt Investments, 14% in PRC equity, 11% in Singapore as Cash, approx. 12% in China in cash after receiving proceeds from short-term investments (see Question 25), approx. 6% in microfinancing

2. Clarity on its Debt Investments: YZJFH lends it to companies via a close loop system and it is secured against the joint venture's assets and land which are about twice the amount of the loan it gives out (see Question 3) and PowerPoint on its collateral held. 

Valuation of YZJFH

Using a Sum of Parts valuation, we will ascribe a discounting factor for each portion of YZJFH portfolio.

For cash, we can set it as 100% because this is cash held in bank. For debts, given that YZJFH has clarified they are collateralized with a high amount of security such that a default by its loanees will not result in large impairments, a 90% factoring is sound.

For equity, to be safe, it will be set at 50% of its value. This is similar to the book value of Hotung Investments and TIH which are listed on SGX.

This means a fair value of YZJFH is $0.890.

Reported Assets$4,450,000,000
Discount FactorValue
Implicit Value:0.84
Implied Asset Value$3,751,350,000
Value to Shareholders$3,469,884,000
Outstanding Shares after share buyback3,850,000,000
Value per share$0.890


Given the company has clarified on the components of its investments, been aggressively doing share buybacks for two weeks and clarified on its 40% dividend policy, YZJFH is undervalued and has a potential to provide a 130% return at the current price of 0.38. The company is a 6% dividend yielder.

To me, this is a strong buy and I will start re allocating my China Investments in Tencent Music and various SOEs to YZJFH. This is because I want to cap my allocation to China. It is good to know YZJFH provides the same dividend rates as my current China stock holdings but with added knowledge that I am investing in a company with a Singapore presence.

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