China Merchant China Direct Investments (CMCDI, 133 HK) has recently published a 4,000-word FAQ page on its website.
Hidden at the bottom of the FAQ page, CMCDI offers five feeble excuses of why it cannot implement a discount management program:
- can’t tell what the “reasonable” discount level is
- can’t predict cashflows for buybacks
- can’t sell undervalued assets to fund buybacks
- can’t remit cash quickly out of China
- can’t shrink the asset under management
We, Argyle Street Management, think that these excuses are unacceptable.
The FAQ starts with asking “Why CMCDI’s share price can be traded at a discount to its NAV?“:
CMCDI’s share price is affected by the interaction of supply and demand and based on ever-changing investor sentiment and risk appetite, as well as the performance of CMCDI’s investment portfolio.
While what CMCDI says is not wrong, it conveniently neglects the fact that a lack of discount management program is the biggest reason of the discount.
Excuse #1: can’t tell the “reasonable” discount level
CMCDI says:
It is difficult to determine the “reasonable” level of share price discount, given the [CMCDI’s] mix in the investment portfolio. As mentioned above, the [CMCDI] principally invests in unlisted enterprises. The valuation of shares / equity interests of unlisted enterprises is somewhat restricted. Though the best efforts have been made by the [CMCDI] to ensure fairness and reasonableness of the NAV, the Board is hard to control market perception towards the NAV. Hence, the “reasonable” discount level is unknown.
Our response #1: While there is no scientific way to determine a precise level of “reasonable” discount, the current price-to-NAV ratio of 0.46x is, beyond reasonable doubt, unreasonable.
The FAQ has also ignores the fact that 48% of its total assets are listed shares and cash (as at 30 September 2024).
Excuse #2: can’t predict cashflows
CMCDI says:
[CMCDI’s’] cash position is not always predictable as the implementation of [active discount management] normally requires readily deployed cash… [CMCDI’s] sources of cash are mainly from dividend payments from investees and the proceeds of divestments. The Company invests a considerable portion in unlisted high growth enterprises such as emerging technologies and medical. Those investees tend not to pay cash dividends. In addition, the size of proceeds from divestments is difficult to predict given the illiquid nature of shares / equity interests of unlisted enterprises.
Our response #2: Half of CMCDI’s portfolio are cash and highly-liquid listed shares, which mainly comprise of China Merchants Bank and iFlytek. Those can easily be sold in a few days.
Excuse #3: can’t sell undervalued assets to fund buybacks
CMCDI says:
[CMCDI] tends to seek long-term capital gains on its investees and any exit decision should be carefully evaluated and well considered. To sell undervalued assets may not be in the best interests of the Company and its shareholders as a whole.
Our response #3: Selling other assets and buying (back) CMCDI shares at market is the best trade that CMCDI can do right now: buying shares at ~50% discount to NAV will guarantee an instant 100% return on investment. We cannot think of a better investment.
Excuse #4: can’t remit cash quickly out of China
CMCDI says:
[CMCDI] has investment entities in both Mainland China and Hong Kong, cash being remitted from / to both sides face applicable laws, rules and regulations and it could be time-consuming for the legal clearance.
Our response #4: This is an unacceptable excuse. If government approvals are required, then go and get them. If the process is time-consuming, then start now. The shareholders are paying the manager over US$ 10m per year to do the work.
Excuse #5: can’t shrink the asset under management
CMCDI says:
By implementing [active discount management] on a routine basis, it will in fact be reducing the scale of [CMCDI] which may not be in the interests of [CMCDI] and its shareholders as a whole.
Our response #5: This is an unacceptable excuse. Yes, discount management may shrink the scale of CMCDI. However, maintaining scale is clearly not the objective of shareholders. Maximizing value per share is shareholder’s sole objective.
Publish through HKEx please
As an aside, an FAQ page is really not the best way for CMCDI to publish such material information as its thinking on the large discount.
An announcement through the HKEx portal is far more appropriate:
- Unlike the HKEx portal, CMCDI’s website does not offer email notification of new content. Many shareholders are not even aware of the FAQ
- Some shareholders in mainland China complain that they sometimes cannot access CMCDI’s website
- A webpage can easily be edited retroactively without a trace, while published HKEx announcements are permanent
The FAQ also talks about Elizabeth Kan. We will write on that later.
If you are new to CMCDI, read our primer.
Chat with us on WeChat or WhatsApp:
💬 WeChat ID: ASM_Argyle
💬 WhatsApp ID: +852 6317 6371
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招商局中国基金（“招商基金”，133 HK）最近在其网站上发布了一个4000字的常见问题解答页面。
在常见问题解答页面的底部，招商基金提供了五个关于为何无法实施折扣管理计划（主动折让管理计划）的借口：
- 很难确定股价对资产净值的“合理”折让程度
- 现金状况并不总是可预测的
- 不可出售价值被低估的资产
- 现金导出 / 汇入两地可能十分耗时
- 不可缩小公司的资产规模
我们Argyle Street Management认为这些借口是不可接受的。
常见问题中包括：“为何中国基金股价较其资产净值出现了一定折让？”
“中国基金股价受根据不断变化的投资者情绪和风险偏好及本公司投资组合的表现所产生的供求互动所影响。”
尽管招商基金所说并没有错，但它却简单忽略了：缺乏折扣管理计划是交易折扣最大原因的事实。
借口1：很难确定股价对资产净值的“合理”折让程度。
招商基金说：
“鉴于本公司(即招商基金)的投资组合，很难确定股价对资产净值的“合理”折让程度。如上所述，本公司(即招商基金)主要投资于非上市企业。非上市企业的股份 / 股权估值相对受到限制。尽管本公司(即招商基金)尽力确保资产净值公平合理，但董事会无法控制市场对资产净值的看法，因此“合理”的折让程度不得而知。”
我们的回复：尽管没有科学方法可以确定“合理”折扣的确切水平，但当前的交易价格仅为仅资产的约0.46倍，毫无疑问是不合理的。
该答案还忽视了其总资产中48%是上市股票和现金这一事实（截至2024年9月30日）。
借口2：现金状况并不总是可预测的
招商基金说：
“本公司(即招商基金)的现金状况并不总是可预测的，而实施主动折让管理计划则通常需要有随时可以调配的现金。本公司(即招商基金)谨慎管理其现金状况以满足日常运营、投资和派息的需要。本公司(即招商基金)的现金主要来自被投资企业所分派的股息和出售投资的所得款。本公司(即招商基金)对新兴技术和医疗等具有高增长前景行业的非上市企业进行了较大量的投资，而该等被投资企业往往不倾向于派发现金股息。此外，由于非上市企业的股份 / 股权不具流通性，出售投资所得款的规模也难以预测。”
我们的回复：招商基金投资组合中一半是现金和高流动性上市股票，主要包括招商银行和科大讯飞。这些资产可以很容易在几天内出售。
借口3：不可出售价值被低估的资产
招商基金说：
“本公司(即招商基金)可能须在时机未成熟时提前出售投资以筹集主动折让管理计划所需的现金。但本公司(即招商基金)倾向于在被投资企业身上寻求长期资本收益，任何退出决定都会经过仔细评估和深思熟虑。出售价值被低估的资产可能不符合本公司(即招商基金)及其股东的整体利益。”
我们的回复：现在卖掉其他资产，以市场价买入（回购）招商基金的股票是招商基金目前可以做的最好的项目：招商基金以净值的大约50%折扣购买股票将确保立即获得100%的投资回报。我们想不出比这更好的投资。
借口4：现金导出 / 汇入两地可能十分耗时。
招商基金说：
“本公司(即招商基金)可随时分派的现金在汇回香港之时面临相关法律、规则及法规约束。本公司(即招商基金)在中国内地及香港均设有投资实体，现金导出 / 汇入两地均面临适用的法律、规则及法规约束，获得相关审批可能十分耗时。”
我们的回复：这是一个完全不可接受的借口。如果汇款需要政府相关部门批准，那就去立刻申请及取得批准。如果流程耗时，那就立即开始。股东们每年支付给投资经理超过1,000万美元的薪酬来为公司完成此项工作。
借口5：不可缩小公司的资产规模
招商基金说：
“如透过定期例行实施主动折让管理计划，实际上会缩小本公司(即招商基金)的资产规模，这可能不符合本公司(即招商基金)及其股东的整体利益。“
我们的回复：这是一个不可接受的借口。是的，折让管理计划会减少招商基金的规模。然而，保持招商基金的规模显然并非股东的核心目标。最大化每股价值是才是股东唯一的目标。
请通过香港联交所网站公告
顺便提一下，常见问题解答页面并不应该是招商基金发布关于折扣问题想法等重要信息的最佳途径。
通过香港交易所门户发布公告会更为合适：
- 与香港联交所网站不同，招商基金的网站不提供最新内容的电子邮件通知，许多股东甚至不知道这个常见问题解答页面。
- 一些在中国内地的股东抱怨有时无法访问招商基金的网站。
- 公司网页可以轻松进行的修订及编辑，不留下任何痕迹，而在香港联交所的公告则是永久的。
常见问题解答页面还提到了简家宜女士。我们稍后会对此进行讨论。
如果您刚开始了解中国基金，请阅读我们的指南。
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💬 微信: ASM_Argyle
💬 WhatsApp: +852 6317 6371
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