Following yesterday’s article on gold, I wanted to look further into the small-cap market tied to the commodity. What I found was an interesting Chinese commodity trading company called Yintech Investment Holdings Ltd. (YIN, Financial). There is a stigma associated with Chinese small-cap stocks, but I think Yintech could be a solid opportunity.
Year to date, the stock is off 38%, but this is likely a fluke as the company anticipates close to $150 billion of trading volume this year. With less than 32% of the Chinese public owning any type of stock, bond or commodity, being one of the largest trading companies has its advantages.
Guru ownership
Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Israel Englander’s Millennium Management both have positions along with Goldman Sachs, Investco and Morgan Stanley. Granted, none add up to more than 0.30% of the total shares outstanding, but for a company with a $700 million market cap, it is quite a lineup.
These investors should be impressed. While Yintech has not been around for very long, it has certainly done well. The company facilitates trading in silver, gold and other precious metals and commodities on the Shanghai Gold Exchange, Tianjin Precious Metals Exchange and Guangdong Precious Metals Exchange.
Over the trailing 12 months, it has earned $171 million net on $477 million in revenue. The stock is trading around $10 while earning $2.55 per share and paying out 80 cents. Return on assets came in at 48%, return on equity at 59% and the company generated over one billion yuan last quarter. One yuan equals about 15 cents right now, but over time (and it is anyone’s guess as to how long) the Chinese will let the currency move higher. A small move would have a massive impact on Chinese American depository receipts.
Recent events
Last year, it bought close competitor Gold Master, which at the time accounted for around 15% of the trading volume ($900 million) on the Shanghai Gold Exchange. In June, the company announced it would use $30 million of its $108 million cash pile to repurchase shares, further boosting the value of the stock. Two weeks ago, Yintech announced a joint venture with Sina Corp. (SINA, Financial) to continue its push as “a provider of diversified investment and trading services to individuals in China.” Sina is a $6.5 billion digital media company with a wide range of properties. It owns 3% of Yintech.
High-yield trade
This is an investment on the numbers. The current price-earnings (P/E) ratio of 3.92 and forward P/E of 6.78 could pay out over 8% in dividends this year, making it worth owning at least a small portion.
Disclosure: I have am not long/short YIN, but may initiate a position in the next 72 hours.
