Brokers’ take: CGS-CIMB initiates Yangzijiang Financial Holdings with ‘add’

CGS-CIMB commenced coverage of Yangzijiang Financial Holdings (YZJFH) , the spin-off of Yangzijiang Shipbuilding , with a “buy” rating and a target price of S$0.74, which is based on blended valuations of 0.6 times the forecasted FY2023 price-to-book value (P/BV) ratio and 9 times price-to-earnings ratio.

In a report on Monday (Jun 6), CGS-CIMB analysts highlighted YZJFH for its track record of investment and investment return growth, along with its strong performance in China.

As YZJFH is the only Singapore listed mid-size cap proxy to fund management and private equity with yield upside of 6.24 per cent by 2023, the analysts believe the stock’s valuations are “conservatively” discounted against peers. 

At the stock’s last closing price of S$0.54 on Monday, CGS-CIMB estimates the stock to trade at 0.49 times 2022 P/BV - below its peers who trade at an average of 1.85 times. 

The research house also noted that YZJFH has established itself in debt investment and the private lending market in China, and believes that the company can utilise its “strong Chinese network” to capture China’s growing wealth management market.

“Together with the newly acquired asset management firm, GEM Asset Management, we think the group can replicate its success outside China with existing ammunition and by leveraging third-party money to grow its AUM (assets under management),” added the analysts. 

They estimate YZJFH’s AUM currently stands at S$4.76 billion - and noted that its management targets to grow its AUM to S$7 billion within 3 to 5 years. CGS-CIMB believes the projected increase in AUM will underpin the group’s earnings growth and dividend payouts going forward.

In addition, the research house noted that YZJFH will have S$760 million additional cash from maturing debt investments by the end of 2022, which will increase its pool of investable funds to S$1.81 billion from the current S$1.05 billion. 

Its analysts therefore believe the stock is trading close to cash value at its current market capitalisation of S$2.1 billion – slightly above its S$1.8 billion of cash by end-FY2022, and with an implied value of about S$0.46 per share.

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This is because the market has yet to price in such upside potential for AUM and fee income growth, said the analysts. 

CGS-CIMB also likes YZJFH for its “generous” 40 per cent dividend payout. The research house projects the stock’s dividend yield to grow to 4.1 per cent and 6.24 per cent in FY2022 to FY2023, respectively, with consistent returns of funds of about 11 per cent.

As at 11.10 am on Tuesday, shares of YZJFH were trading at S$0.53.