Cinda International Holdings Limited

Cinda (‘Company’) is 63% owned by Cinda Securities Co. Ltd, which is indirectly controlled by China Cinda Asset Management Co. Ltd – and ultimately controlled by the Chinese Ministry of Finance. The company was formed in 1999 and the H-shares were listed in 2013.

It provides asset management services (36% of latest six-month revenues), corporate finance services (44%), and sales/trading/brokerage services (21%).

It acts as China Cinda Group’s service centre for overseas asset management with a focus on distressed and troubled assets.

In its corporate finance business, it acts as advisor for equity and debt issuance. This includes equity issuance for Chinese companies looking to list in Hong Kong and overseas US$ bond issuances for Chinese companies.

The sales/trading business benefits from increased trading activity on the Hong Kong stock exchange, and includes interest income on margin financing (8-13% p.a. in the recent period).

The company reported TTM revenues (to June) of $320m (2019: $297m) and net profits of $50m (2019: $52m).

It reported substantial liquid assets, which primarily comprised listed debt securities, collateralized receivables, and cash. Current assets net of all liabilities amounted to $452m. (Gross borrowings were $984m.)

The debt investments alone totaled $737m (valued at market) and this was primarily invested in Chinese real estate developers, financial service providers, as well as industrials among others.

Non-current assets primarily comprised interest in associates and a joint venture of $381m – these were interests in other asset management companies that were profitable on a group basis. Overall, the company reported net tangible assets of $909m.

The common stock is currently selling for $244m, which is 54% of net current asset value, 27% of net tangible asset value, and less than 5x earnings.

The big negative here is the lack of dividends. Management haven’t paid out any dividends for at least the last five years.

Prospects for the company appear good with increased listings of Chinese company shares on the Hong Kong stock exchange – for which the company is particularly well-positioned.

The importance of state control is signified by the requirement of bank facility agreements for the Chinese state to maintain 50%+ ownership and control of the company at all times.

This stock appears to be a bargain considering the entrenched nature of its business and favorable long-term prospects. Along with the substantial discount to asset value, the investor can expect the build-up of equity at a satisfactory rate.