Yangzijiang Financial - Undervalued At ~0.3x 2023F P/B
- We think the persistent decline in China’s real estate industry could be Yangzijiang Financial (SGX:YF8)’s greatest headwind in 2H22F and 1H23F. Real estate loans accounted for ~32% of Yangzijiang Financial’s debt portfolio as at end-1H22. Gross non-performing loan ratio spiked to 30.8% as at end-3Q22, more than double the 14.4% average over FY18-21.
- Although Yangzijiang Financial has a 2.3x coverage ratio backed by land/building collaterals as at end-1H22, and had made a provision for loan losses of S$14.8m in 3Q22, we think sustained COVID-19-related lockdowns could prolong lacklustre home sales and further dampen property values in 1H23F.
- We believe Yangzijiang Financial has ~80% of its debt investments slated to mature by 1H23F, and hence non-performing loan increases and mark-to-market losses could weigh on its 2H22F earnings. We estimate a 37.8% h-o-h net profit decline in 2H22F.
- Yangzijiang Financial secured from the People’s Bank of China (PBOC) a liquidity scheme to facilitate cross-border fund transfers of up to RMB10bn from China, equivalent to ~50% of its total asset under management (AUM) of ~Rmb22bn, in our estimates. It had targeted to transfer S$1bn to Singapore by end-FY22F. We think ~S$610m has been transferred as at end-3Q22 (including S$99m spent on share buybacks), and transfer of the remaining ~S$390m has been delayed to end-Jan 2023F.
- We think Yangzijiang Financial's share price performance would hit trough in 2H22F as we believe the liquidity pool scheme increases the certainty of transferring funds to Singapore, spurring offshore investments, taking Yangzijiang Financial’s fund management business out of limbo.
- However, we think Yangzijiang Financial’s cash drag situation could be extended as the volatile macroeconomic environment weighs on investment opportunities. Investments also take time to reap returns, and track records take time to build. We now ascribe a 30% discount to private equity (PE) peers in our SOP valuation.
- Retain ADD rating for Yangzijiang Financial with a lower target price of S$0.64. We roll forward our valuations to CY24F; our target price for Yangzijiang Financial is now based on 0.6x CY24F P/B (comparable to China banks) and 7x CY24F P/E (30% discount to P/E peers).
- We think Yangzijiang Financial is deeply undervalued at ~0.3x CY23F P/B.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
Izabella TAN CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2022-12-05 2022-12-05
Previous report by CGS-CIMB:
2022-08-12 Yangzijiang Financial - Yield Play.