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YZJ Fin Hldg
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YZJ Financial Holdings
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salim88
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31-Jan-2025 10:02
Yells: "20 years professional/ institutional trading, investment " |
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YZJ Financial Holdings (YZJF) .... one of the best risk/ reward opportunities I have seen for SGX Stocks The Opportunity A Singapore investment company listed on the Singapore Exchange (SGX) operating very much like a fund structure that invests in debt and equity securities. It is trading at $0.45 while its net cash is $0.49 and NAV is $1.11. In other words, you pay the current market price $0.45 per share, you get $0.49 of cash + $0.62 worth or debt and equity securities. A rare Benjamin Graham' s Net-Net value investing opportunity in a company with a great historical track record + fast improving business fundamentals. The technical chart is extremely bullish with the recent breaking of a 2 year downtrend + multiple subsequent upside breakouts and a very strong momentum vs the general market. Its relatively high daily short interest (sometimes as high as 30-50% of daily volume) serves as a potential upside force in short covering. Remember the Gamestop (GME) Saga back in 2021? 
The Company YZJF was previously operating under Yangzijiang Shipbuilding (YZJS) investing capital generated from its main shipbuilding business. It was carved out from the successful and well-run YZJS, distributed in-specie to its shareholders and listed on SGX in 2022. Its principal activity is investing its own capital, seeking capital appreciation and investment income from investments in both public and private companies, funds and debt investments. It also provides wealth management and fund management services but the revenues from these 2 businesses are minimal or non-existent. Its AUM is 50-50% split between China and Singapore, deployed in cash management products (42%) , debt investments (37%), Equity (12%) and Maritime investments (8%). It is progressively reducing its weightage in China and deploying into maritime-related investments and credit funds in Southeast Asia, particularly Singapore Why does this mispricing opportunity exist? 1. Approximately 50% of its investments are in China, weighed down by the negative China sentiment in the past few years. 2. spinoff listings like YZJF typically suffer from:(1) heavy selling by shareholders (especially institutional investors) whose mandate prohibits them from holding a business different from its mother company (2) a lack of understanding of the business 3. Market participants not giving enough weight to the positive and mitigating factors, which is explained below: Price has overshot on the downside: The positive and mitigating factors 1. Irrational discount to NAV. Trading below net Cash value!! - The company has a NAV of $1.11, net cash per share of $0.49 vs share price of $0.45. $0.68 is invested in Debt (37%), Maritime Assets (8%), Equity (12%) while total liabilities is $0.06. It is natural to be very concerned about the value of its current investments and future investments. However, given such a steep discount to its asset value, to the extent of below its net cash level. The risk/ reward is extremely attractive considering: a) The NAV is derived after loss provisions on its investments b) The debt investment portfolio is backed by c.50% of loan-to-value (LTV) ratio of collaterals and corporate guarantees c) At current price of $0.45, It has an annualized earnings yield of 15%, dividend yield of 5% and Share Buy Back yield of 3% d) YZJF had an excellent investment track record from 2011-21 (see point 2 below) 2. YZJF and its mothership YJZS have an excellent track record in running the business even during tough economic and industry times. - From 2011-21, when YZJF was operating as YZJS' s investment arm, it has generated an impressive return track record of 9-15% pre-tax ROA. - Unlike many Chinese companies, YZJS' s Revenue, Earnings have approximately doubled and share price is up 5x from 2020-2024 3. Solid reputation and track record + Positive forward outlook for its business - In mar 23 YZJF management guided that the worst is likely over for their industry and expects strong growth in maritime fund and maritime investments going forward - Going forward,YZJF is focused on redeploying more funds into maritime-related investments. Given its entrenched network and deep knowledge in the maritime industry, it is well-equipped to recognize attractive prospects and successfully execute deals in this space. progressively deploying its cash into maritime-related investments and private credit funds in Southeast Asia, particularly in Singapore. In Jan 25, it ordered 4 product tankers from Jingjiang Nanyang Shipbuilding to be delivered in 2026/27. Current charter rates suggest an annual cashflow yield of 20%. Given the impressive track record and reputation of its mother company + its expertise in debt and securities investments in its sector, its fund management business might take off giving it a new source of fee income 4. . Insiders Buying - 2 Directors bought in aug23 at $0.36 ~ 1.3mil shares - Company have been actively buying back shares, 100+ mil shares (approx 3% of outstanding shares) from Jan to Nov 2024 5. Signs of green shoots for Chinese Economy: - Smart money going long on China equities: Eleven funds have been launched under the Qualified Domestic Limited Partner (QDLP) program this year, which is already higher than any previous year. Fund management heavyweights including Blackstone, Bridgewater Associates, and Oaktree Capital have opened funds in the country this year. Fund managers with a good track record of seeing ahead of the crowd (David Tepper, Michael Burry ) have been buying China equities for the past few quarters. During a BloombergTV interview in Nov24, prominent investor Howard Marks said, " ....comments about China being uninvestable are &ldquo music to my ears,,,, &rdquo - sentiment on Chinese equities is at one of the lowest points in history and equity prices have significantly hit since 2021 These are typical bullish contrarian signs. - The Chinese government has introduced various monetary and fiscal stimulus policies to boost the economy Valuation As YZJF is very similar to a fund, it should trade near its NAV of $1.11 which generates a current annualized EPS of $0.06 and DPS of $0.022. The EPS is likely to increase once it starts deploying more cash (40+% of AUM ) into higher yielding investments which would also contribute positively to its DPS and NAV growth. The discount to NAV would reduce when the current negative sentiment starts improving. Conservative Valuation: assuming 50% of all non cash equivalent investments are wiped out (highly unlikely given its NAV has already provided for losses + its strong historical track record + 50% LTV on debt investments) = Cash & Yield enhancement products + 1/2 the value of all other investments - Total Liabilities = $0.49 + 0.5 ( $0.68) - $0.06 = $0.77 Hence a reasonable short term Target Price is $0.77 to $1.11. Investing at Current Share price of $0.45 would imply a potential 71- 147% upside and collecting 5 % in annual dividends + 3% returns from Share BuyBacks. This excludes any future improvement on its investment returns and incremental fee income from its fund management business !!! Potential Catalysts 1. Improvement in its Investment performance and its investment management business 2. More market participants start to realize this irrational discount + the upside potential of the business. Info would spread exponentially resulting in rapid rise in share price 3. Privatization by its mother company YZJS. Buying YZJF at current price while getting cash and securities at NAV implies a 170% return on investment, a very attractive ROI for any fund manager. Risks Its current investments and future investments will suffer a loss greater than the current discount to its NAV. A highly unlikely scenario as all its current investments would have to drop to zero plus it has to lose more than 4 cents per share out of the 49 cents per share it currently has. |
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