Catalysts:
Large market possibility
Good balance sheet to return cash to shareholders
Delinquency rates back to 5%
Risks:
Regulations could lower their interest rates
Subprime lending is risky
Lower number of customers if only good borrowers are chosen
Rapidly changing business environment in China
Business trying new ventures, many of which have failed
Walimu Kids, the newest business venture, is taking cash away from the business
Resurgence of Covid-19 in China
75% of voting rights belong to CEO
Financial Analysis:
Valuations
My personal Biases
1.9% of my portfolio
Focusing on balance sheet value
Losing confidence in management. If Wanlimu Kids fails or keeps losing so much money, will sell
Assumptions
Generates $150 million in owner’s earnings per year in base case for next 2 years (down from $200 million in previous analyses because of Wanlimu Kids)
$200 million in owner’s earnings in the following 3 years
Discount Rate of 20%, assuming all currency and business risks
Terminal Growth rate of 3%
Exit Multiples Analysis
Based on Book value in 2025
Book value doesn’t change in base case
20% higher in bull case and 25% lower in bear case
Conclusion
Deep Value Stock, looking at book value
Uncertainties surrounding business future
Undervalued even with a margin of safety
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