Yang Zi Jiang: CS maintains O/p, with TP $1.30. Note that financial investments continue to be an overhang and estimates that the total size of informal lending at Rmb4t, the most likely short-term time bomb for the Chinese economy. One remaining overhang on YZJ’s share price, could be Rmb10b investment in fixed rate instruments offered by Chinese banks and trust Co’s with a return of 10-15% p.a. Loans are backed by collateral including listed shares (37%), land titles (41%) and guarantees (22%).
House believe that the risk of writedowns is low given the coverage rate of collateral (2.71x for shares as of 30 Jun), a sudden slowdown in economic activity and some inflationary pressure could see some borrowers defaulting on their loans. A clear signal from mgt that there would be no further investment when existing products mature is needed to fully unlock the value in Co.
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