CGS-CIMB has started coverage of Yangzijiang Financial Holdings (YZJFH) at Add, citing its “generous” dividend payout ratio of 40 percent.
The brokerage estimated YZJFH’s yield would come in at 4.1 percent to 6.24 percent over 2022 to 2023, with consistent return on funds of around 11 percent.
“YZJFH has established itself in debt investment and the private lending market in China. We believe YZJFH can utilise its strong Chinese network to capture China’s growing wealth management market,” CGS-CIMB said in a note Monday. “Together with the newly acquired asset management firm, GEM Asset Management (GEM), we think the group can replicate its success outside China with existing ammunition and by leveraging third-party money to grow its assets under management (AUM).”
YZJFH, which was Yangzijiang Shipbuilding‘s debt investment and investment management arm and which was recently spun off into its own SGX listing, has invested around 75 percent of its S$4.2 billion asset portfolio, or around S$3.15 billion, the note said, citing management. Around S$2.52 billion is in debt investments, and around S$630 million, or 15 percent, is in private equity funds as of May, the note said. Around 10 percent of the balance, or S$420 million will gradually be invested in Singapore funds and around S$630 million, or 15 percent of the balance, will be conserved, the note said.
But YZJFH’s market cap of S$2.1 billion is only slightly above its around S$1.8 billion in cash, CGS-CIMB said, adding this indicated the market hasn’t priced in upside potential from AUM and fee income growth.
In addition, YZJFH is targeting increasing its AUM to S$7 billion in three to five years, from an estimated S$4.76 billion currently, the note said.
CGS-CIMB set a target price of S$0.74, based on 0.6 times 2023 estimated price-to-book value, comparable with Chinese banks, and 9 times 2023 estimated price-to-earnings, which is the peer average.
“We like the stock as it is the only Singapore mid-size cap proxy to fund management with yield upside of 6.24 percent by 2023F,” the brokerage said. “Valuations are conservatively discounted against peers. We are confident in the success of fund management,” with the addition of S$560 million AUM within a month of listing.
Shares of YZJFH tumbled 3.7 percent to S$0.52 as of 2:17 p.m. SGT.