Comprehensive Analysis of Yangzijiang Financial Holding

Broker: CGS International Securities

Date: February 25, 2025

Overview

Yangzijiang Financial Holding (YZJFH) has reported a remarkable performance in the second half of 2024 (2H24), showcasing a net profit of S\$198 million, which reflects a significant growth of 76% compared to the previous half and an astonishing 392% year-on-year increase. This performance surpassed the expectations of analysts who had anticipated a profit of S\$61 million. The primary drivers behind this impressive outcome include robust cash management, maritime income, and a series of impairment reversals coupled with substantial tax rebates.

Financial Performance Highlights

YZJFH’s full-year net profit for FY24 reached S\$310 million, again exceeding the projected S\$173 million. The notable factors contributing to this success are:

• Enhanced contributions from cash management and maritime fund investments.
• Realized gains from Singapore fund investments.
• Writebacks in allowances for debt investments that were fully repaid during the year.
• Increased tax rebates in China.

In light of these results, YZJFH has declared a final dividend per share (DPS) of 3.45 Singapore cents for FY24, marking an increase from 2.25 cents in FY23.

Debt Portfolio Management

The company has strategically reduced its debt investment portfolio in China to approximately 29% of total assets under management (AUM), which translates to about S\$1.2 billion as of the end of 2H24. This reallocation aligns with its medium-term target of maintaining around 30% exposure. The company recorded S\$46 million in impairment reversals in 2H24, indicating a significant improvement from the substantial allowances noted in prior periods, attributed to challenging operating conditions in China.

YZJFH has diligently reduced its exposure to debt investments over the last two years, cutting S\$1.5 billion cumulatively while restricting new debt investments to about S\$355 million. Management is optimistic about lower impairments going forward, as they believe the necessary adjustments for weaker exposures have already been accounted for.

Future Growth Strategy: Maritime Investments

Looking ahead, YZJFH aims to enhance its maritime assets significantly, targeting an allocation of US\$900 million in maritime-related investments over the next three to five years. As of 2H24, the company has already invested US\$450 million in maritime assets, with a cautious deployment strategy that adheres to an investment return threshold of 8-10%.

Analyst Rating and Target Price Update

In light of the recent financial results and the positive outlook on macroeconomic conditions, CGS International Securities has reiterated an “Add” rating for YZJFH, adjusting the target price upwards to S\$0.66 from the previous S\$0.42. This revision reflects expectations of enhanced cash management and maritime fund income, alongside anticipated mild impairment writebacks.

The target price is derived from a blended valuation approach based on price-to-book value (P/BV) and price-to-earnings (P/E) metrics, with a particular emphasis on the improving landscape in China’s real estate sector which may enhance asset valuations and facilitate non-performing loan (NPL) recoveries.

Market Position and Risks

As of the latest analysis, YZJFH has a market capitalization of approximately US\$1,469 million and a current share price of S\$0.565, indicating a potential upside of 16.8% relative to the new target price. The company currently enjoys a consensus rating of “Buy” from analysts, with no holds or sells indicated.

However, investors should remain cautious of potential downside risks, including:

• Exchange rate fluctuations that may adversely affect US dollar-denominated assets in Singapore.
• Economic uncertainties in China that could impact NPL levels and interest income.

Conclusion

Yangzijiang Financial Holding has demonstrated an exceptional financial turnaround, characterized by impressive profit growth and strategic portfolio management. With a focused approach on maritime investments and reduced exposure to debt, the company’s future looks promising. Analysts maintain a positive outlook, emphasizing the potential for further growth given the favorable market conditions and strategic initiatives outlined by management.