Unlocking Value

In the recently published FAQ page of its website, China Merchant China Direct Investments (CMCDI, 133 HK) says that it cannot implement a discount management program, because there is no “reasonable” level of discount to net asset value (NAV):

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.

We, Argyle Street Management, disagree.

Simple math shows that the current level of discount is unreasonable.

0.06x implied P/NAV on unlisted assets is unreasonable

As at 30 September 2024, 48% of CMCDI’s total assets are liquid (i.e. cash or listed shares). The rest are not listed, though Pony.ai and iFlyHealth (accounting for 7% total assets) may go IPO imminently.

CMCDI’s NAV is HK$ 32.5 per share. For simplicity, let’s assume half of that (i.e. HK$ 16.25 per share) are liquid, and the other half (HK$ 16.25) are non-listed.

(CMCDI only breaks down its total assets, not net assets. So we can only guess the breakdown of net assets.)

Other reputable China-focused closed-end funds (e.g. Fidelity, JPMorgan), which focus on listed assets, are trading at 0.8-0.9x P/NAV ratio. Let’s take an average of 0.85x.

Mathematically, if we value CMCDI’s liquid assets also at 0.85x P/NAV, the current share price implies that the non-listed assets are worth only HK$ 0.91 per share, or 0.06x P/NAV.

This is unreasonable by any standards.

Here is the math:

	CMCDI NAV per share (HK$)	Price-to-NAV ratio	Share price (HK$)
Total	$32.5	0.45x implied by current share price	$14.72 current share price
Minus: Cash and listed shares component	(HK$ 16.25) approximately	0.85x based on peer closed-end funds	($13.81) i.e. 0.85x of $16.25
Remaining: non-listed assets component	$16.25 approximately	0.06x implied by current share price	$ 0.91 (= 14.72 – 13.81)

It would be irresponsible to blame “market perception” for undervaluing the non-listed assets.

The massive undervaluation is primarily caused by CMCDI’s lack of discount management programs.

What is a reasonable discount level?

We acknowledge that non-listed assets deserve a larger discount than liquid assets.

For example, if we assume 0.65x P/NAV for non-listed assets (and 0.85x for liquid assets), that translates to overall P/NAV of 0.75x, or HK$ 24.37 per share.

	CMCDI NAV per share (HK$)	Assumed Price-to-NAV ratio	Share price (HK$)
Cash and listed shares	$16.25 approximately	0.85x based on peer closed-end funds	$13.81
Non-listed shares	$16.25 approximately	0.65x assumed	$10.56
Total	$32.5	0.75x	$24.37

This is the reason we propose that CMCDI shall implement a discount management program, to gradually narrow the discount to 30% and eventually 20%.

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

🖥️ UnlockValueChinaMerchants.com

📧 ChinaMerchants@asmhk.com

---

招商局中国基金（“招商基金”，133 HK）最近在其网站上发布的常见问题页面说其无法推进折让管理计划是因为很难确定股价对资产净值的“合理”折让程度。

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。

我們Argyle Street Management並不同意。

简单的计算一下就知道当前的折价水平是极其不合理的。

未上市资产0.06倍市净率是不合理的

截至2024年9月30日，招商基金的总资产中有48%为流动资产（即现金或上市股票）。其余部分未上市，不过小马智行和讯飞医疗（占总资产的7%）可能很快上市。

招商基金的净资产为每股港币32.5元。为简单起见，让我们假设其中一半（即每股港币16.25元）是流动资产，另一半（16.25港币）是未上市资产。（招商基金只披露了总资产的详情，因此我们只能估计净资产的分布情况。）

其他知名的以中国为投资重点的封闭式基金（例如富达、摩根大通），这些基金专注于股票投资，他们的交易价格为0.8-0.9倍市净率（股价/净资产）。让我们取0.85倍的平均值。

如果我们将招商基金的流动资产也按照0.85倍市净率估值，当前股价意味着未上市资产部分仅值每股0.91港币，或者0.06倍市净率。

从任何标准来看，这是不合理的。

以下是计算过程：

	招商基金 每股净资产 （港币）	市净率	股价 （港币）
总计	32.50	0.45x 根据目前价格测算	14.72 目前的价格
减：流动资产（现金及股票）	-16.25	0.85x 参考可比公司	-13.81 即16.25的0.85x
剩余部分： 非流动资产	-16.25 估计/约数	0.06x 剩余的内含比例	0.91

将非上市资产估值大幅折扣的原因归咎于“市场对资产净值的看法”是不负责任的，这种巨大低估主要是由于招商基金缺乏折价管理计划。

多少折价才是合理？

我们承认非上市资产应会比流动资产有更大的折价。

如果我们假设未上市资产的市净率为0.65倍（流动资产为0.85倍），这代表着整体市净率为0.75倍，即每股24.37港币。

	招商基金 每股净资产 （港币）	假设市净率	股价 （港币）
流动资产（现金及股票）	16.25 估计/约数	0.85x 参考可比公司	13.81 即16.25的0.85x
非上市部分	16.25 估计/约数	0.65x 假设	10.56
总计	32.5	0.75x	24.37

这也就是为什么我们提议招商基金应实施一个折价管理计划逐步将折价从30%逐渐降低到最终20%的原因。

如果您刚开始了解招商局中国基金，请阅读我们的指南。

欢迎随时与我们联系：

💬 微信: ASM_Argyle

💬 WhatsApp: +852 6317 6371

🖥️ UnlockValueChinaMerchants.com

📧 ChinaMerchants@asmhk.com