16 Comments

There are only 4 companies listed in the US with a negative Total Enterprise Value and a Return on Invested Capital of >10% over the past year.

Three of them are Chinese ADRs (NOAH, YRD & LU) and QIWI is the other (but it is Russian and not traded now).

Why wouldn't you continue to hold NOAH (or buy it back in a dip) given their financial resilience over a very challenging period and their conservative balance sheet?

https://www.prnewswire.com/news-releases/noah-holdings-limited-announces-unaudited-financial-results-for-the-fourth-quarter-2023-and-audited-financial-results-for-full-year-2023-302099757.html

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@IJW what platform do you use to buy 2283:HK? I'm interested on your take between LU vs YI. LU way below book value and YI trading around 1x net cash. Which is more attractive to you relatively speaking?

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Apr 1Author

I use Interactive Brokers. They are very cheap when it comes to currency conversion.

YI has net debt now as they will probably not be able to get a STAR listing (which is a 1bn RMB liability). Supposedly 2/3 of this liability are on friendly terms with management. But I like LU much better here for sure. I sold much of my stake after earnings dissapointed at ~$1.5 a few weeks ago. LU is a much larger position for me.

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Thank you! Do you have a twitter btw?

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Apr 17Author

No active Twitter, got off Twitter a while ago because I found it too distracting/addictive.

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$LU is trading at 0,10x book (after dividends). If it profits US$ 600 MM 2025, trading at 10x p/e, it would be a fivebagger (after dividends) very quickly

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Mar 27Author

A 4 bagger, you have to take dilution into account since Ping An will likely take shares instead of cash. But these financial businesses usually don't get more than a 4-6x multiple. 20% earnings yield would mean a 8% divvy yield. My main hope for further significant upside is either a buyout and/or further special dividends.

Another $1.5 in special dividends next year, a 5x earnings multiple on $600m of earnings with 700m shares outstanding + $0.4 regular dividend = ~190% upside. QFIN and FINV will be inferior businesses in 2025 compared to LU and they trade at 3-4x earnings.

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I disagree. In 2021, it was trading at 20x p/e. It’s very liquid. I think at least 8x p/e is fair, thinking in a china sentiment normalization. It would still be like 0,5x p/b

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Mar 28Author

Yeah maybe 8x if they can profitably grow and China pessimism has gone away a few years from now. I wouldn't put too much stock into where it traded in 2021 as it was spun off at a high valuation. And pretty much straight away went on a downwards spiral.

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This argument can be made for many Chinese companies. H shares (MSCI China H) in Hong Kong are generally very low valued with an average price/earnings ratio of 5 and a price/book value of 0.6. There is a large China discount. The question is whether it is justified. There was also a big discount on Russian shares. In this case, the discount was justified.

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Apr 6Author

Often it is justified, they are either cash boxes run for the majority holder or some exporter or just straight up frauds. The quality compounders usually don't trade that cheaply (with some exceptions).

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Apr 6Liked by IJW

Yes, I agree. Note that there is also a large premium on A / H shares. A shares in mainland China are usually more expensive than the same H shares listed in Hong Kong. You can find an overview here. Don't expect the H shares to close the gap and come up to the price level of the A shares.

http://www.aastocks.com/en/stocks/market/ah.aspx?sort=5&order=1&filter=3

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Apr 6Author

The difference between A shares and EU and US traded shares is even bigger. See Jinko Solar and Daqo new energy.

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Or imagine what would happen to your China shares if China were to attack Taiwan. The value would possibly melt away.

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Apr 6·edited Apr 6Author

The global economy would go in a massive tail spin. As 60% of global chip supply would dry up overnight and possibly be partially destroyed forever. Everything contains chips. It would create an economic crisis the West has probably never seen before.

Which is why I think it won't happen anytime soon.

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Hopefully. But China also seems to have other problems and it is possible that its growth will come to an end. Still, it could be a good contrarian market. See also here: https://www.youtube.com/watch?v=5vWCzfX9MI4

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