Original Qiqi Baicaidi Qiqi Baicaidi July 13, 2024 18:44 Shanghai
Disclaimer: In the investment field, information changes rapidly. I record the stock market and my thinking process in plain language every day. The following content is my observation and thinking and does not constitute any investment advice. All profits and losses have nothing to do with me ☺️
Today, Saturday, I saw a very interesting company news. There is a listed company in Suzhou, Jiangsu called Lake Electric. Its core technology is high-speed motors, and its main business is small household appliances centered around motors: vacuum cleaners, air purifiers, kitchen appliances, etc. The total market value is 12.54 billion, and it employs nearly 10,000 people. It is a true manufacturing company.
Such a manufacturing company that earns meager profits has become a hot topic because of its financial management ability! In 2023, the annual operating income was 8.8 billion, and the non-net profit was 983 million. At first glance, the profit margin was 11.1%, which was higher than that of Midea Group (8.8%). The China Securities Regulatory Commission asked why the company did not distribute dividends when it had 6 billion in its account, and why the company's debt was growing?
After the final investigation, it was found that the company was borrowing short-term interest-bearing loans to cover daily expenses, while converting large amounts of funds into US dollars and saving them to earn 5.67% interest on US dollars. In the whole year of 2023, it did nothing and saved US dollars to earn 291 million in interest! 30% of the company's profits came from interest, and the financial skills are quite good! In addition, excluding interest income, Lake's main business profit margin is less than 8%, which is reasonable now.
Suzhou Lake is really the pride of the electrical industry! While supporting nearly 10,000 employees, it also makes extra money legally and reasonably. That's a real skill, better than most companies in the A-share market! It has become a financial talent all of a sudden. Why not transform and change its name to Lake Finance? 😁
…………Basic knowledge, transfer and integration………………
We have always heard that the repo is extremely harmful to the A-share market, but two days ago, the China Securities Regulatory Commission issued a document to suspend the repo and increase the margin for securities lending to 100%. Many netizens are confused. Since the repo has been suspended, why is the margin for securities lending increased? I will talk about the repo, repo, financing and securities lending from the perspective of retail investors with my shallow understanding.
Let’s take a look at this chain first:
Securities finance company-->Securities company-->Investor
1. Securities finance companies (China Securities Finance Co., Ltd., referred to as China Securities Finance Corporation) lend their own or market-raised funds and securities to securities companies (such as CITIC, Haitong, China Merchants, Shenyuan Wanhong, etc.), and securities companies then lend the funds and securities to qualified investors (institutions and individuals).
2. The complete process of this chain is called refinancing (individual investors cannot participate in refinancing, this is the first pitfall). It includes refinancing and refinancing:
Refinancing is when a securities finance company lends money to a securities company
-->Securities companies then lend the money to institutional investors
-->Institutional investors get money to buy stocks
-->Sell stocks when they go up
-->The money is returned to the securities company, and the remaining part is the profit of the institutional investors. This is called long position.
Securities lending is when a securities finance company lends securities (here refers to stocks) to a securities company
-->Securities companies then lend the stocks to institutional investors
-->Institutional investors get the stocks and sell them to get the money
-->Wait for the stock price to fall, and then spend less money to buy back the same number of shares
-->The stocks are returned to the securities company, and the remaining money is the profit of the institutional investors. This is called short selling.
Note: Securities finance companies can borrow stocks from large company shareholders or individuals to lend to securities companies, and restricted stocks can also be borrowed. This is the second pitfall! Company shareholders lend their own company stocks to others to short their own companies. This is what retail investors despise. This system is really ridiculous! ! The transfer and financing should be cancelled.
3. The process in which securities finance companies do not participate in this chain (that is, securities companies lend money or securities to investors) is called margin trading:
Financing is when securities companies lend money to investors
-->Investors get money to buy stocks
-->Sell stocks when they go up
-->The money is returned to the securities company, and the remaining part is the investor's profit.
Short selling means securities companies lend stocks to institutional investors
-->Investors get the stocks and sell them to get the money
-->Wait for the stock price to fall, and then spend less money to buy back the same number of shares
-->The stocks are returned to the securities company, and the remaining money is the investor's profit. This is short selling.
Note: The investors here include institutional investors (such as pension funds, social security funds, insurance companies, etc.) and qualified retail investors (good credit, passed risk assessment, and average daily assets of more than 500,000 in the past 20 trading days). According to 2022 data, only about 2% of retail investors are eligible to participate in margin trading.
Well, you see the difference between securities lending and short selling. Therefore, as an A-share financial consumer, you must be clear about your consumption and the rules set by others so as not to be deceived.
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Finally, there is some good news in the cryptocurrency world. Nearly 50,000 bitcoins held by the German government were all sold out at around 3 am today. The market has withstood this selling pressure. There will be subsequent selling in Mentougou. Let’s see if the market can hold on.
The above is my learning and record today. Friendly exchanges are welcome!
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