YZJ Fin Hldg    Last:0.22    -0.005

YZJFH - potentially rewarding

Been thinking why big shareholders/funds like T Rowe dump a lot of shares recently. Is it because YFH is outside their funds mandates? Don' t think so. If that is the reason, they would have sold earlier at much higher prices. Dumb to sell off at lower prices instead. 
Is it because they know something bad about YFH that we retail investors don' t know? Don' t think so either. T Rowe only pared down their holdings, not sell off everything.
I think it is because like most funds, they are highly leveraged. As the prices of their other holdings drop like stone, they need cash to top up their margin. So they sold some YFH holdings simply because they need cash.

 

Another old post by volvo125 👇 🏻
 

YFH Valuation 2 

volvo125        01-Jun-2022 15:14    

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@pkli899, @emailpeter,

 

I tend to hold a very different view on how Ren was running YZJ in the past, as well as the nature of Debt Invest biz in the eyes of the public investors.

 

1.    I certainly do not think Ren was hoarding on to the yoy fast growing cash piles since 2008 until the spin off. Hoarding cash means keeping the huge growing cash pile in the book without any meaningful competitive returns other than the mediocre risk free bank interest. The cash deployed in DI far exceeded the bank rate and has been generating a 3% returns per quarter or ~12% pa before tax and these consistent impressive returns were achieved with zero leverage.

 

2.    It is not uncommon for companies to pay out 20~30% npat as dividend and retain the ~70% for capex, working capital, as reserve, reinvestment and capacity expansions, M& A .... etc. Ren was ploughing the excess returns after dividend payout and capex back into yard expansion and DI in the past 10 years+.   

 

I vaguely read somewhere that YZJ had increased its yards from 2 to 4 in the past 10 years. On the SB front, It is highly likely that Ren could not go on a much more aggressive buying spree for more yards so as to ensure YZJ can achieve a delicate balance of capacity utilisation vs margin and in turn continue to be able to deliver strong profits and cash flow yoy. Hence most of the cash were deployed onto DI to maximise the coy overall returns while growing the coy NAV yoy.

 

3.    I also do not see this DI an  ah Long biz per se as Ah Long will charge far far higher interest than the ~12% pa interest (~3% per quarter) and in an unlicensed underground dealing manner. Ah Long will probably charge 10~20% per month with no collaterals needed. YFH has a valid Debt Investment license issued by the Chinese Government to conduct such loans disbursement and backed by sufficient collaterals, and these loans are disbursed out and managed in an open and professional manner as a listed coy. Further, prominent ultra high profile veterans in the Regulatory Finance sector such as Chew, Chua and Yee would never have or want to openly and legally associate themselves with YFH by taking up the ID roles and risk tainting their impeccable reputations if YFH is deemed operating even in the slightest flavor along the line of an ah Long coy outfit ...

 

4.    YZJ is currently more than fully valued against its 0.83 NAV and is in the transition of being rerated to valuation on PE multiples. It will certainly take time to reach the uobkh 1.11 ( ~10xPE, which is 33% above its NAV) and probably many year to see cimb 1.64. Regardless, YZJ will continue to operate as a rock solid, debt free and growing cash machine that is now backed by a 3yr order book. I would expect the dividend payout rate will have to increase as the yoy free cash flow no longer has a viable DI avenue to deploy to.

 

5.    YFH would easily meet the 8% ROE and payout 40% npat as dividend with the " proven" DI biz .... but Ren and Toe are progressively moving towards transforming the coy beyond DI to the supposedly higher margins pte equity investment, fund management (eg. thru ADDX .... ) and wealth management  (family offices ... etc) biz. I' m no expert to critically appraise and comment on these new biz. But Ren has a very impressive record of building up YZJ and YFH and with a very strong and high profile board backing him, I am of the opinion that YFH can' t go far wrong.   

 

At 0.50 today, YFH is still very, very undervalued at a mere 46%Nav with an estimated 7% yield at current price or 3.2% kE (est 0.035 dividend) with a yoy progressively growing Nav. I certainly have no qualm paying 50ct to buy such an impressive income generating $1.08 asset at face value with a high future capital appreciation potential..

 

Above are my opinions .... please ignore if you think otherwise ...

 

 

Below is a post by volvo125 in the deleted 2022 Superstar thread. Had saved it as I found it very useful. Hope volvo will not mind that I reproduce it here in case others want to read it again.
 

YFH Valuation 1

volvo125        17-May-2022 23:29    

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This ERM is actually new to me when I first saw it in Simplywall.st just days ago but I am familar with DCF, WACC and TV as I was involved in M& A activities. But their concepts are similar. DCF is for conventional coy while ERM is for asset mgt coy. By the way, I am also learning so we learn together.

 

The 1.8% risk free rate taken from the 5yr Govt bond is a given, meaning anyone can just buy the bond and sure get this 1.8% pa coupon return no risk. There are certainly 10yr, 20yr, 30yr Govt Bond but no investment appraisal decision will use the higher risk free rate for the longer period bond for reference. This 1.8% risk free rate for 5yr Govt bond is suffice to be use as a perpeture growth rate reference ( note : assumption of growth rate to perpecturity, not just 5 years. )     

 

Ignore the the 1.44 valuation by Simplywall.st because Simplywall.st was using a kE [or required rate of return on equity, or discount rate] computed with the prevailing S& P equity risk premium adjusted for the " supposedly" relevant Capital mkt beta (or risk), giving a kE 6.19%. But Ren is not paying us an equity return of 6.19%. Ren is paying us much less. And Simplywall.st certainly not aware Ren has intention to pay out only 40% of NPAT as dividend ( you may take the receipt of this dividend as the return that you get on the equity, meaning this is the kE for you and me)

 

I shall lay this numbers out to you ( and all our friends here in this thread ) again using 40% payout policy, 8% ROE and 1st year NAV 1.08.

1.    eps = 0.08*1.08 = 0.0864

2.    40% payout = 0.4*0.0864 = 0.03456 or 0.03456/1.08 = 3.2% [ this is the kE that you and I get, not 6.19% but 3.2% ]

3.    ER (excess returns) = 0.0864 - 0.03456 = 0.05184 [ this excess value will go back into the asset pool [supposedly ... ideally] to capture new investments, meaning your NAV will go up by this amount.]

4.    TV (terminal value) = 0.05184 / ( 3.2% -1.8% ) = 3.7  [ ok .... this is a another technical formula similar to the Gordon growth model, using dividend and cost of equity to determine the price. In this case, this sub model or formula within the ERM is trying to give a valuation to this Excess returns yoy (year on year) to perpetuity. The valuation (or terminal value) of this future stream of excess returns based 8% ROE, 3.2% kE will worth $3.7 per share today. Why use 3.2% minus 1.8% because 1.8% is a given, so the model wants to take the true return less risk free ]

5.    YFH value = 1.08 + 3.7 = $4.78 per share

 

To help you understand even better, now I shall lay out the Yr 2 numbers for you on the same 8% ROE, 40% payout :-

1.    NAV yr 2 = 1.08 + 0.05184 = 1.13184  [ see ... the NAV has just increased due to the plough back of excess returns. The asset backing per share has strengthened. For an asset mgt coy, it also means that you have more cash to deploy for new investments. ]

2.    eps    = 0.08 * 1.13184 = 0.09055  ( still 8% ROE but your eps in absolute dollar term is higher )

3.    40% payout = 0.03622  or  0.03622/1.13184 = 3.2% ( see ... still 3.2%, but your dividend on yr 2 is higher in absolute dollar term )

4.    ER = 0.09055 - 0.03622 = 0.05433  ( the excess returns value is also higher due to the higher eps in absolute dollar term )

5.    TV = 0.05433 / ( 3.2% - 1.8% ) = 3.88  ( the higher ER in yr 2 will give a higher TV )

6.    YFH value = 1.13184 + 3.88 = $5.01 per share

 

Observations and Implications

1.    YOY, the NAV will go up to the amount equivalent to the ER being ploughed back into the asset pool for reinvestment.

2.    eps in absolute dollar term will go up yoy at the same 8% ROE, die die only 40% payout from NPAT.

3.    ER will also go up yoy.

4.    TV must go up yoy if ER is going up yoy on a constant 3.2% kE.

5.    YFH equity value can only go up going forward

 

Now, someone here may ask what exactly the Yr 1 value $4.78 and Yr 2 $5.01 mean or imply ? Now, if YFH so decide to sell away the business and find a buyer in Yr 1 now, the $4.78 will be used as a reference for negotiation. If this happens in Yr 2, then $5.01 will apply because the coy asset base has grown.

 

Conclusions :-     

1.    So, NAV yoy higher + TV yoy higher will give a 2 prones value increase on YFH equity value yoy.

2.    You will get more dividend in cash term yoy even though the payout is capped at a constant 40% NPAT or a translated 3.2% kE.

3.    YFH will become an infinitely growing cash machine ....   

 

The valuations worked out above are drawn from ERM (not me ...), the financial model used by the professional valuers to appraise Asset Mgt Coy in the Capital mkt. In the short run when little is known or not clear on how the YFH internal mechanics works, the stock market will accord a discount to the coy ..... some times very steep as in what we see today at 0.415 close. In the long run, the full effect on how all the above numbers will play out based on Mgt (Ren and Toe) committed 8% ROE ( i vaguely remember he mentioned target 8~10% ROE) and 40% payout policy.

 

This post very long ... so likely a lot of typo .... pardon.

 

Kindly ignore this post if you do think I am talking nonsense ..... 

 

Is there a need to compare the image and reputation of YFH with YSB? 🤔 After all, they are different businesses. Perhaps YFH might ride on the image and reputation of YSB at first. But YFH might have already built up its own image & reputation in the loans market over the years. Perhaps we might want to consider instead how much of the relevant core values that make YSB successful can be carried over to YFH. 

ss2017.      ( Date: 12-Jul-2022 22:30) Posted: How can we assess the image and reputation of YFH in comparison to YZJ Ship? As this is a new entity it is very difficult to find such comparison.

 

YFH can be attractive in various ways. Its zero debt and low PB attract value investors. Its dividend policy and potential dividend growth attract dividend investors. Its high market liquidity and volatility attract traders and short term investors.

Hope that posts in this new thread will share useful news and insights about YFH from these various angles, without running down others who view YFH from a different angle.