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Bear of the Day: Yintech Investment Holdings Limited (YIN)

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Commodities trading in China is a bit different than here in the States due to several issues ranging from the complex (the structure of the Government) to the simple (day to day trading), but when two of the three exchanges a company trades on, the company’s future will be difficult no matter any other issues. This is what is facing our Zacks Bear of the Day, Yintech Investment Holdings Limited (YIN - Free Report) .

This Zacks ranked #5 (Strong Sell) is an online provider of spot commodity trading services primarily in China. The Company provides services which includes account opening, investor education, market information, research, live discussion boards and real-time customer support. It facilitates the trading by individual customers of silver, gold and other precious metals and commodities on exchanges, Shanghai Gold Exchange, Tianjin Precious Metals Exchange and Guangdong Precious Metals Exchange. Yintech Investment Holdings Limited is headquartered in Shanghai, China.

Recent News

In early May Yintech was informed that the Guangdong Precious Metals Exchange would terminate all trading of current products.  The exchange accounted for 41% of Yintech’s commissions and fees last year.  

Then on June 2, the Tianjin Precious Metals Exchange announced that they will adjust their spot commodity trading business in attempts to reduce trading risks.  According to the press release, “[the exchange] will suspend the opening of new trading positions for all spot commodities traded on the exchange starting on June 12, 2017. The closing of existing trading positions will not be affected. As a result, Yintech will no longer be able to generate significant revenue from its business carried out on the Tianjin Precious Metals Exchange after June 12, 2017. It is expected that the Company's results of operation will be significantly impacted by this development.”

Management’s Take

According to Mr. Wenbin Chen, Chairman and CEO, “We fully support the Chinese Government's ongoing efforts to clean up the spot commodities trading market. While our business will be affected in the short-term, we believe the industry will come out leaner, cleaner and better regulated and we expect to come out in a stronger competitive position. We have a leading market position in the Shanghai Gold Exchange, which is regulated by the People's Bank of China and is the only national-level spot commodity exchange in China. We have always been committed to maintaining the highest operational standards within the industry and I believe our business on the Shanghai Gold Exchange still has huge potential to grow. Looking forward, our strategy is to become a provider of diversified investment and trading services to individual investors in China. Our core strength lies in our deep understanding of, and extensive experience in serving, Chinese individual investors, which can be easily leveraged for other investment and trading products. We have identified a few promising areas and are in advanced stages of preparation for launching new products in the coming quarters."

"The Guangdong Precious Metals Exchange recently terminated trading of all products on the exchange while the Tianjin Precious Metals Exchange reduced its leverage ratios by roughly half. Both of these changes will impact our customer trading volumes and revenues during the second quarter. We nevertheless remain optimistic in maintaining healthy profit margins during the second quarter due to cost saving initiatives on advertising and variable employee compensation."

Price and Earnings Consensus Graph

As you can see in the chart below, both the stock price and future earnings expectations have collapsed since the exchanges made their moves.

Yintech Investment Holdings Limited Price and Consensus

Yintech Investment Holdings Limited Price and Consensus | Yintech Investment Holdings Limited Quote

Declining Earnings Estimates

Due to the closure and significant reduction in business availability in two of their three exchanges earnings estimates have dropped for FY 17 and FY 18 over the past 30 days; FY 17 fell from $2.62 to $1.59, and FY 18 plummeted from $3.22 to $1.45.

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