20 Comments
Jan 25Liked by IJW

And an interesting tidbit from the annual report:

Our PRC subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance

with PRC accounting standards and regulations. Under PRC laws, each of our PRC subsidiaries and the Consolidated Affiliated Entities

are required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of

its registered capital. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future

losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the

event of liquidation. As a result of these PRC laws and regulations, our PRC subsidiaries are restricted in their ability to transfer a portion

of their net assets, including general reserve and registered capital, either in the form of dividends, loans or advances. **Such restricted

portion amounted to RMB2,040.5 million, RMB2,950.5 million and RMB2,826.6 million (US$409.8 million) as of December 31, 2020,

2021 and 2022, respectively.**

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Jan 25Author

Thanks for the feedback.

This is also a bit of an orange flag that I overlooked:

"The VIEs contributed an aggregate of 29.6%, 35.1% and 41.4% of the consolidated net revenues for the years ended December 31, 2020, 2021 and 2022, respectively and an aggregate of 47.2% and 66.4% of the consolidated net income for the years ended December 31, 2020 and 2022, respectively. For the year ended December 31, 2021, the net income of the VIEs contributed an aggregate 36.2% of the consolidated net income excluding the settlement expenses. As of December 31, 2021 and 2022, the VIEs accounted for an aggregate of 30.6% and 30.4%, respectively, of the consolidated total assets."

In general I try to avoid VIEs when investing in China.

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Jan 25Author

BTW this amount includes any sort of capital right? So technically most of their cash is available for distribution. As they bought a large headquarters in Shanghai for $360m in 2021.

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From what I understood, and I can't claim to be an expert, these amounts can't be used for a special distribution, but could be used for an acquisition, that they thought they'd do in the past couple of years. In any case, it's a big amount relative to their cash holdings and to their market cap that they can't return to their shareholders directly.

Again, that's my understanding, and it could be wrong, etc etc.

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Jan 25Liked by IJW

I think this is cheap-ish, and can potentially grow substantially and I'l likely regret it, but it falls on the too hard pile for me. By the way, thanks for writing thoughtful posts, and for the hospitality in the comments.

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Feb 14Liked by IJW

Any view on the HK vs US listed shares? The docs suggest the ADR representing 2 shares but the HK share price does not seem to reflect this

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Feb 14Author

HK shares trade slightly cheaper, but are a lot more illiquid.

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I'm a bit worried that NOAH might be a scam. Why have they increased the number of shares in 2023 if they have so much cash? Anyway, there have been relatively many (small) Chinese companies with high cash holdings in the past that turned out to be scams. In these cases, the cash did not even exist.

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Mar 6Author

They invested some of their clients money in a scam, and paid them back with shares. I don't think it is a fraud given the reputations of insiders involved. The business itself might be a bit iffy though, given that they possibly help clients get money out of China.

https://valueinvestorsclub.com/idea/NOAH_HOLDINGS_LTD__-ADR/2016155975

From the above write-up:

"In Q3 2020, Noah announced a settlement agreement with their affected clients (which was not required) which pays clients in Noah shares (at a maximum dilution amount of 1.6% per annum) over the next 10 years. While they have no obligations to make clients whole, they felt it made economic sense to protect the brand. A small number of clients had filed lawsuits against Noah (~30M RMB worth, so tiny). But they didn't want that group to snowball and ultimately create a lot of bad press and ill will from clients."

I did close this idea though, see here for more info on why:

https://turtles.substack.com/p/quick-ideas-7

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Interesting ideas! Thanks for sharing. In my opinion, Dada´s case is more a bet than an investment. Who knows what can happen after reporting revenue overstating!! Therefore, why not paying the bet by buying call options?

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Jan 22Author

They are expensive, and downside is nicely covered by their $500m net cash position.

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While Noah is cheap optically, no one is rushing to buy the stock the same reason no one is rushing to buy cheap Chinese bank stocks: there are some real asset quality issues in some of its investments: some of these issues have already come to light, but many more others haven’t

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Jan 18Author

What do you mean? Their Gopher fund has outperformed the indices, they got out of Chinese real estate a few years ago and their one fuck up, the Camsing indicident, is only a $15m remaining liability.

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Jan 25Liked by IJW

after taking a look at the presentation, I see that some VC investments have cratered in the public markets one they IPOd. Unsure if they continued to hold them post ipo, just worth mentioning.

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similarly, parts of PE land have been struggling since the rise of the interest rates. They likely are exposed to part of that

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maybe noah's real success depends on cleanly getting capital out of china ! :)

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Jan 25Liked by IJW

this was my first thought after stumbling upon this post - that noah facilitates getting capital out of China and CCP's reach.

They mention in their presentation linked above that they deal with "identity", "family office" etc. I saw that they have a small base in Greece that piqued my interest(I'm Greek). I saw that they have an open position on linked in for a Greece based position, whose duties involve inspecting real estate projects' progress. The reason is, that Greece offers one of the most, if not the most, attractive "golden visa" programs in EU. For just 250k euros you get to buy a Greek passport. It got so popular that the gov raised the limit to 500k for some popular areas.

hope that's helpful.

NOAH looks cheap though, and if it's allowed to flourish, it should grow larger going forward.

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Jan 18Author

Do you think that would specifically be a problem for NOAH? There are plenty of Chinese companies paying large regular dividends.

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Jan 19Liked by IJW

this was a bit of a joke on demand to get capital out of reach of the CCP. i do not think there is a deficit of (global) investment options for wealthy chinese, and longterm data has indicated an enormous home-country preference for all income levels.

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Jan 25Author

Ah I misunderstood your comment. You meant Noah helps people get money out of the country. Since Xi is increasingly centralizing power, demand for their services should then go up no?

Or are there serious efforts underway to introduce some sort of limited rule of law within China?

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