Yangzijiang

Yangzijiang: HSBC notes now is a good time for the micro-lending sector, as authorities want to ease the country’s heavy reliance on bank lending. Notes microfinance currently accounts for less than 0.5% of total credit, and a unique opportunity is opening up for small lenders to cherry pick high quality borrowers who have nowhere else to turn, while charging them at rates of up to 40% pa. Recall last wk, YZJ attended a non-deal road show with Credit Suisse. Said, as part of its strategy to overcome the shipbuilding downturn, the group intends to grow its supplementary business to support its net profit. YZJ expects to maintain its held-to-maturity (HTM) assets above Rmb 10b (about one-third of total assest), which provides a yield of 10-12%, to boost its interest income. The HTM assets are products related to the micro-lending business in China, hence YZJ could benefit from the potentially lower risk landscape painted by HSBC. The stock trades at 5.1x P/E, 1.2x P/B.