Save China Merchants China Direct Investments (133.HK)

We met with China Merchants China Direct Investment (133.HK) last Friday. We congratulated management for the successful and profitable partial exit of its investment in UnionPay.

By July, per our own estimates, the fund could have around 500m HKD equivalent of cash (if adding the pending CMB dividends to current cash balance), which is 32% of existing market cap of the fund.

We hope that as in 2018, a sizeable interim dividend can be paid out to reward shareholders.

We also hope management can issue guidelines on future steps to further unlock shareholder value.

更新：

上周五我们拜访了招商局中国基金（133.HK）管理层，并祝贺管理层成功退出大部分所持有的银联股份。

我们预测基金今年七月可能会拥有约 5 亿港元等值现金，约占基金目前市值的 32%。

我们希望如同 2018 年一样，公司会派发可观的中期股息以回馈股东。

我们也希望公司能公布未来持续释放股东价值的计划。

Tony Zhang

Rydal Value Fund Ltd.

This post and this website are for informational purposes only and is subject to revision, amendment, and completion. It does not constitute an offer to buy or sell or a solicitation of an offer to buy or sell interests in any security.

Dear Management team,

We are a fund focusing on small and micro-cap opportunities in Hong Kong. We are also a shareholder of 133.hk (China Merchants China Direct Investments Limited), and we would like to provide you with our thoughts and comments.

First of all, thank you for providing an interesting listed product to enable investors to access quality unlisted companies in Chinese growth industries.

Unfortunately, the fund is trading at around 30% of Net Asset Value. In other words, the market has such little faith in your investment acumen that your fund is valued significantly below liquidation value, implying meaningful value erosion.

Why has this happened?

• >30% of the assets are in a single stock – China Merchants Bank A-shares. Such over concentration in a single stock/sector is unusual and unreasonable in what is primarily a private equity fund.
• There has been very little efforts to close the NAV discount. Few investments would be as cheap as buying back your own stock at 0.3x book, but you have not done a single buyback since 2013. Another major shareholder has publicly proposed a well thought out path to unlocking value, where you dispose some of your listed stock portfolio and return value to shareholders, yet you have not provided any feedback or comments.
• Investors are concerned about misalignment of incentives. It can be perceived that the fund is setup to maximize management fee, not to maximize value to shareholders. In 2022, you have paid yourselves more in management fee, versus what shareholders received in dividends.

We are long term shareholders, and we like your unique product and exposure to growth sectors. This is why we would like to support the Investment Manager in the upcoming Extraordinary General Meeting this year for renewal of the Management Agreement. But we hope you would consider your shareholders’ feedback and comments. We look forward to seeing your roadmap on closing the NAV discount as soon as possible.

Tony Zhang
Rydal Value Fund Ltd

尊敬的管理团队：

我们是一家专注于香港小盘股的基金， 也是133.hk（招商局中国基金有限公司）的股东，希望给您提供我们的一些想法和意见。

首先，我们要感谢您搭建了一个差异化的上市基金产品，让股票投资者能参与优质非上市公司的成长。

可惜目前贵基金的市场价格为资产净值的 30%。 换句话说，市场对贵团队投资能力严重缺乏信心，导致基金股价远低于清算价值。

为什么基金如此被低估？

• 基金超过30%的资产都集中在招商银行A股。 对于私募股权基金来说，如此过度集中于单一股票/行业是不寻常且不合理的。
• 基金没有释放股东价值的计划。基金股价仅为净值的3折，但自 2013 年以来，基金没有再进行过回购。另外一个基金主要股东公开提出了一条经过深思熟虑的释放价值的路径，建议您处置部分二级投资并通过分红回馈股东，但您目前尚未有任何反馈。
• 投资者担心贵基金投资团队激励措施的错位。 投资者担心基金的费率和条款保证了最大化管理费，而不是最大化股东价值。 2022年，您支付给自己的管理费超过了股东收到的股息。

我们是长期股东，也欣赏您独特的产品和对成长行业的投资。 我们希望在今年召开的特别股东大会上支持重新委任贵团队为投资经理， 但我们也希望您能考虑股东的反馈和意见，并尽快提出释放股东价值的计划。

张天力 （Rydal Value Fund Ltd）

Relevant Links / 相关链接：

Breakdown of Assets as of Dec 31, 2023 基金资产分配：
https://www1.hkexnews.hk/listedco/listconews/sehk/2024/0115/2024011500220.pdf

Contact us: contact@save133hk.com