Yangzijiang Financial Holding

[specuvestor]

I do observe that Ren Yuanlin, has "come out of retirement" and has taken on the executive chairman at FH. In earlier posts, specuvestor has been waiting for ~14 years (and counting) for them to blow up since they started the non core financing arm. If Chairman Ren (Father) is a seasoned battle hardened businessman who is able to straddle seamlessly between politics and business worlds, then it is heartening to see him taking up the role again.

As for Chairman Ren, I remember previously Specuvestor did mention that he did a good job to get parent out of the shadow banking mess ~10years ago. While it remains to be seen if he is "good at investment" but all he needs to do here, is to get out of the current debt mess...

Thanks CY09

I'm too lazy to dig out my posts in YZJSB but suffice to attest to what Weijian mentioned above that I've been monitoring YZJ for a very long time and they had been credible getting out of the Wenzhou mess... (unless some of the projects mentioned in their 2025 results update A-G is Wenzhou? )

Of particular interest is Project G marked down 28% as a new 4Q25 project?

Nonetheless the market has always been skeptical about their non-shipping business hence they decided to spin off YZJFH in Apr 2022 and that did enhanced YZJSB performance significantly. Back then we were told that YZJFH portfolio was strong locations and collaterised, and it's short term loans that they can cut loss if deteriorated yet now some "have fallen 70-80% compared to a few years back" when property prices already dropped around 20-30% during COVID to 2022, ie it dropped 90% from COVID (?) which is even worse than 3rd-4th tier city of 50-60% :O 

Incidentally chairman Ren stepped down in Oct 2025

That's why I am wondering was the property not marked down from Apr 2022 or beyond? Valuers or auditors slacking?

Just a perplexed spectator

CFO said property prices have fallen 70-80% compared to a few years back. The NPLs were real estate projects and they are struggling to offload the units to repay the debt. Manager cited one example of a wuxi city project (tier 2 city) where developer have difficulty selling the units

As to why a few of the projects have lower NPL ratios, this is because a portion of the debt is guaranteed by the owner.

[weijian]

This is indeed intriguing... anyone knows why the jump in ECL when the chinese property market is probably past its worst? Delayed recognition due to Maritime spinoff?

Hi specuvestor,

China is huge and non-homogenous in all ways. So once we get into details across different geographies or asset classes, it is very nuanced. VB Big Toe has bought up the dichotomy of the residential property market between Tier 1 and the rest of cities. Even across non-residential asset classes, as per Capitaland Investment CEO in AGM, retail/hotel assets are "resilient" while office/business parks are still suffering from "oversupply".

The "jump" in ECL rate is triggered by timing rather than actual valuation. In the AGM, it was explained that the State manages the liquidation process (bankruptcy claim-to-auction of collateral) and started to expedite the whole process in 2H25. So rather than wait as they had done since 2022, Mgt got the cue and decide that the best course of action is to march to the beat of the Motherland and take cash off what's left to re-allocate to "good business opportunities" they see elsewhere.

The drop in prices (in practice) probably happened much earlier than what is marked on paper (in theory). It is only when one goes to the auction bell, then theory gets reconciled with practice. For example in the last 6 months, we could see that play out at AF Global auctioning their Xuzhou JV.

[setan]

I do observe that Ren Yuanlin, has "come out of retirement" and has taken on the executive chairman at FH. In earlier posts, specuvestor has been waiting for ~14 years (and counting) for them to blow up since they started the non core financing arm. If Chairman Ren (Father) is a seasoned battle hardened businessman who is able to straddle seamlessly between politics and business worlds, then it is heartening to see him taking up the role again.

As for Chairman Ren, I remember previously Specuvestor did mention that he did a good job to get parent out of the shadow banking mess ~10years ago. While it remains to be seen if he is "good at investment" but all he needs to do here, is to get out of the current debt mess...

Thanks CY09

I'm too lazy to dig out my posts in YZJSB but suffice to attest to what Weijian mentioned above that I've been monitoring YZJ for a very long time and they had been credible getting out of the Wenzhou mess... (unless some of the projects mentioned in their 2025 results update A-G is Wenzhou? )

Of particular interest is Project G marked down 28% as a new 4Q25 project?

Nonetheless the market has always been skeptical about their non-shipping business hence they decided to spin off YZJFH in Apr 2022 and that did enhanced YZJSB performance significantly. Back then we were told that YZJFH portfolio was strong locations and collaterised, and it's short term loans that they can cut loss if deteriorated yet now some "have fallen 70-80% compared to a few years back" when property prices already dropped around 20-30% during COVID to 2022, ie it dropped 90% from COVID (?) which is even worse than 3rd-4th tier city of 50-60% :O 

Incidentally chairman Ren stepped down in Oct 2025

That's why I am wondering was the property not marked down from Apr 2022 or beyond? Valuers or auditors slacking?

Just a perplexed spectator

CFO said property prices have fallen 70-80% compared to a few years back. The NPLs were real estate projects and they are struggling to offload the units to repay the debt. Manager cited one example of a wuxi city project (tier 2 city) where developer have difficulty selling the units

As to why a few of the projects have lower NPL ratios, this is because a portion of the debt is guaranteed by the owner.

Hi Specuvestor,

The mark down of 28% for project G a "new one" was queried by one of shareholder during the AGM. This is not a new project, it is started in 2021. It is the case that the mark down was insufficient as the situation in 2025 went worse. That was their explanation.

setan

[weijian]

Of particular interest is Project G marked down 28% as a new 4Q25 project?

Nonetheless the market has always been skeptical about their non-shipping business hence they decided to spin off YZJFH in Apr 2022 and that did enhanced YZJSB performance significantly. Back then we were told that YZJFH portfolio was strong locations and collaterised, and it's short term loans that they can cut loss if deteriorated yet now some "have fallen 70-80% compared to a few years back" when property prices already dropped around 20-30% during COVID to 2022, ie it dropped 90% from COVID (?) which is even worse than 3rd-4th tier city of 50-60% :O 

Incidentally chairman Ren stepped down in Oct 2025

That's why I am wondering was the property not marked down from Apr 2022 or beyond? Valuers or auditors slacking?

Just a perplexed spectator

Hi specuvestor,

Project G was a "new mark down in 4Q25" than "a new loan in 4Q25". I have to admit it is ambiguous, to the extent one shareholder who thought it was the latter, had really furious questions in the AGM. But, if one bothers to look/understand the NPL and its ECL (which I had roughly mapped out in earlier posts), one would find there was no new originations of NPL in 2025 and therefore cannot be "a new loan in 4Q25". From page142 of AR25 under "loss allowance for debt investments", ~10.5mil of ECL has been shifted from Stage 2 to Stage 3 (NPL). To calculate the absolute NPL amount, we divide 10.5mil ECL by the previous year's Stage2 ECL rate --> 10.5/16% ~ 65mil. Since this almost matches the project G's number in ppt, it is probably a "new mark down in 4Q25" and was previously considering an underperforming loan (ie. Stage 2), isn't it?

Since 2022, we can see that the ECL ratio has been increasing. This is in light of NPL liquidations occurring more than existing Stage1/2 loans been classified to Stage3, therefore the gross NPL has roughly halved in size. The 1st thing we can conclude is that Mgt has done a decent job with halving it since 2022. Then from what has transpired, it is also clear that what is remaining of the NPL, stuff that Mgt delayed clearing, is probably also the most problematic. This explains why the ECL ratio has increased from 2022 as they progressively clear the less problematic ones. Also, if we look at the NPL ratios in 2022 - YZJSB carrying the legacy NPL at 42% loss and YZJFH's NPL at 12.7% loss, we can see huge dichotomy within "one NPL classification".

In the AGM held in 2025, Chairman Ren mentioned that when they deal with a NPL, they will first reduce the interest rate from double digits to low single digits. Since they are not property specialists, seizing collateral (land/property) is one of the last resort as ownership of such hard assets is not ideal compared to getting cash back for the loan. But in this year's AGM, new chairwoman Liu has said that NPL does not have interest income and we know they are now dealing with collaterals.

As for whether valuer or auditors are slacking, my view is that their job is execute according to the letter, and the letter is accounting principles (ie. on theory). My job as an investor is to reconcile theory with practice. Fortunately a couple of years back, I had some prior practice working on auctions on Malaysian residential properties. I am not saying that prior practice in Msia is replicable to China's but with that experience, I kinda can connect the dots a little bit better I suppose.

[specuvestor]

Thanks Setan and Weijian for insights into the AGM. It is indeed strange to specially have a remark "New Project in 4Q25" but that probably confirms some of these projects went beyond 2022

I understand what you saying Weijian and the collection process, the give and take... I happen to have gone through AFC But that's why you have a portfolio that has a basket of apples and maybe with 1 or 2 lemons.

But to have a basket mostly of lemons is quite an accomplishment by itself. And I am all the more intrigued that in your NPL numbers from 2021 to 2025 hovers around $650m even as gross debt balance falls, and with all the spin offs in between. In 2023 YZJ SB redeemed the entire RMB1.575b debt investment after writing down RMB65.878m that it inherited in 2022. Meaning the NPL loans added post spinoff is most problematic as you mentioned since everything before 2022 was transferred to YZJSB

SGD291m writeoff is like the size of the portfolio (post writeoffs already done) transferred to YZJSB. Chairman Ren is savvy

This is indeed intriguing... anyone knows why the jump in ECL when the chinese property market is probably past its worst? Delayed recognition due to Maritime spinoff?

Hi specuvestor,

China is huge and non-homogenous in all ways. So once we get into details across different geographies or asset classes, it is very nuanced. VB Big Toe has bought up the dichotomy of the residential property market between Tier 1 and the rest of cities. Even across non-residential asset classes, as per Capitaland Investment CEO in AGM, retail/hotel assets are "resilient" while office/business parks are still suffering from "oversupply".

The "jump" in ECL rate is triggered by timing rather than actual valuation. In the AGM, it was explained that the State manages the liquidation process (bankruptcy claim-to-auction of collateral) and started to expedite the whole process in 2H25. So rather than wait as they had done since 2022, Mgt got the cue and decide that the best course of action is to march to the beat of the Motherland and take cash off what's left to re-allocate to "good business opportunities" they see elsewhere.

The drop in prices (in practice) probably happened much earlier than what is marked on paper (in theory). It is only when one goes to the auction bell, then theory gets reconciled with practice. For example in the last 6 months, we could see that play out at AF Global auctioning their Xuzhou JV.

[weijian]

Thanks Setan and Weijian for insights into the AGM. It is indeed strange to specially have a remark "New Project in 4Q25" but that probably confirms some of these projects went beyond 2022

I understand what you saying Weijian and the collection process, the give and take... I happen to have gone through AFC But that's why you have a portfolio that has a basket of apples and maybe with 1 or 2 lemons.

But to have a basket mostly of lemons is quite an accomplishment by itself. And I am all the more intrigued that in your NPL numbers from 2021 to 2025 hovers around $650m even as gross debt balance falls, and with all the spin offs in between. In 2023 YZJ SB redeemed the entire RMB1.575b debt investment after writing down RMB65.878m that it inherited in 2022. Meaning the NPL loans added post spinoff is most problematic as you mentioned since everything before 2022 was transferred to YZJSB

SGD291m writeoff is like the size of the portfolio (post writeoffs already done) transferred to YZJSB. Chairman Ren is savvy

Hi specuvestor,

For the redemption of RMB1.575b debt by YZJSB, take note this is net DI after ECL. The RMB65.878m loss it took was the difference in the ECL rate between end FY22 (43%) and point of redemption (45%). You can refer to the thread that talked about it here: https://www.valuebuddies.com/thread-1076...#pid169258 (VB Yoyo and I also speculated how could such problematic debt be disposed in such a quick instance. SB was on the upturn and probably they found it wiser to focus on the building ships)

Due to YZJSB been assigned all the FY21 NPLs in the 1st spin-off, the NPL numbers should be compared from 2022 to 2025 for an apple-to-apple comparison. Therefore, it might be a tad unfair to say that it remains relatively unchanged at around 650mil.

As for the 2nd spin off (YZJMH), it has a few flavors - (a) YZJMH took almost all the offshore cash. And we know the source of this offshore cash is from redemption of onshore DI, pay 10% taxes and then wired offshore since 2022. (b) YZJMH did not take any DI. But they took Chairmen Ren (and the MAS license)  ....In essence, this 2nd spin-off is a Spore (YZJMH) - China (YZJFH) split.

Rather than a basket of lemons, maybe we should think of it as starting out as a basket of apples+ lemons before the apples have been largely eaten up. Now what's left in the basket are largely lemons.

[specuvestor]

Hi Weijian

yes it is net DI after ECL... that's what I wrote in the last sentence And yes I was curious as per YoYo as well on how YZJSB managed to bite the bullet so quickly (even when there was a new intra-year loan of RMB500m) whilst the new ECL came in fast and furious at S$1.41b in 2022 as per your table

It is currently trading 1/2X NAV with this basket of mostly lemons still 49% of AUM with 37.4% cash vs 1H23 61% basket and 21% cash (pre-Maritime spin off) and trading 0.3X Book according to the preso

I'm not sure how comfortable you are with the rest of the basket but I guess I roughly have my conclusion that the market was right to be wary of YZJ before 2022 spinoff. But let's see if they will deploy their cash into offshore Asia Pacific next 3 years

[Yoyo]

It is a wrong perception that the China real estate has bottomed a couple of years ago.  

2022 was the start of the correction, 2023 was a weaker year, 2024 saw further declines, and 2025 was still soft but with signs of stabilization ins some top-tier cities.  The broad correction is generally tied to the post 2021 property slump and tighter developer financing, which hit sentiment, sales and prices.

For a broad China view, think of 2022-2024 as the main downside years and 2025 as a weak but slight stabilizing year.  New property and resales prices are still trending downward in early 2026.

It is in this background that Management tried to defend its credit loss assessment. On hindsight, they may be too optimistic in its loan recoverables assessment, on the back of collateral (2x loan amount), owner guarantee, seizure of unfurnished property for completion, aggressive debt collections and re-arrangement with borrowers. All these measures re-inject much needed breathing space to the underlying NPL. As the pressure built up over time, they may have surrender eventually, recorded a massive ECL in Year 2025 (kitchen sinking).  With the recent spin-off of the high growth Maritime business and a leadership overhaul, the new management has a strong incentive to clear the deck of legacy bad debts in China.  By taking the hit now, they reset the base for future performance. (No new leader would like to hold on to historical baggages.)

冰冻三尺非一日之寒, Rome wasn't built in a day.
There appears to be a slacking in the NPL assessment and properties not duly marked down since April 2022. Investors do has a right to point their fingers are the Management, Auditors and Valuers (in descending responsibility order). 

The Auditor performs stratified sampling and materiality with a risk based selection. Its primary responsibility is to the Company, to perform audit work to reach at a true and fair view on the financial statement.  It is difficulty to pinpoint fault on auditor, unless they are aware of any fraudulent handling.

I would hold the Management liable, after-all it is the responsibility of Management for the preparation of the financial statement.

Have exited YZJFH prematurely (prior to the spin-off of Maritimes).  Directionally right but wrong timing.

[specuvestor]

Hi YoYo I think for the record nobody here has the perception that China real estate bottomed a few years ago. You might have misread

In fact the property prices continued to go down (except Shanghai) this year but the delta is already improving or stabilised past 12 months

I would think valuers has a big part of the responsibility cause they should be aware how much the area has been marked down; it's not exactly a secret how much hit the chinese property has suffered past 5 years. And yes the management will know whether it makes sense or not or if it is reasonable. But as usal we just have to loop back to incentives / motivations for these 2 parties as Buffett mentioned.

I'm just wondering how the risk turned out vs what they have been saying including collateral and short term loan rollover with credit review

[weijian]

I'm not sure how comfortable you are with the rest of the basket but I guess I roughly have my conclusion that the market was right to be wary of YZJ before 2022 spinoff. But let's see if they will deploy their cash into offshore Asia Pacific next 3 years

hi specuvestor,

Based on my observation, in the absence of market extremes, Mr Market is remarkably good with directionality. But while it is good at gauging whether the company is getting fatter or skinnier, it does make mistakes often with approximating the weight itself due to various biases or factors.

As OPMI, the entire DI is to me, a black box since day 1. It still is. However, sometimes a black box where we have no knowledge of the number of apples and lemons inside, may still offer clues every now and then.

The first major clue came when YZJSB disposed of the legacy NPL debt at ECL=45% based its 1H23 reporting. The 2nd clue revealed itself over the next 2 years as gross DI reduced by ~45% by end FY24. Now, I would say the 3rd clue has been revealed, ie. the NPL ECL ratio increasing to 63% for end FY25. This 3rd clue is in the context of gross DI staying relatively constant YoY and the knowledge that many apples were removed from the black box in the last 2 years. So, common deduction will conclude there are more lemons relative to apples now (when it is trading at 0.5x NAV) compared to a few years ago (when it was 0.3x NAV).

While Mr Market signals the directionality correctly but the intelligent investor can assess whether Mr Market has made any significant mistake wrt to its weighing scale on an on-going basis.

P.S. Mr Market often make mistakes with its weighing scale but in general, the mistake is not big enough for a good risk-adjusted "bet" or the mistake simply corrects itself faster than we would like.