Investment highlight
Cover China Renaissance Capital Investment Holdings (01911) for the first time to rate the outperform industry, with a target price of HK $25.50, corresponding to 8.4x PCME in 2021. The reasons are as follows:
China Renaissance Capital Investment is a relatively scarce listed target to participate in the value creation of enterprises in the innovative economy of the primary market. In the early days, the company took the FA business of Innovation Economics as the main growth engine and became a leading player in the market, and used it as an entrance to obtain customer flow, and continued to provide customers with comprehensive services throughout the life cycle through investment banking and investment management business, so as to grow together with the enterprise.
Over the past 15 years, the company's rapid development has verified its business model. The company has formed an investment banking + asset management two-wheel drive profit model, accounting for 37 per cent and 50 per cent of investment management income in 2020, respectively. Under the light asset business model, the group has a ROE of 18.8 per cent and a leading profitability.
The breakthrough of IPO business in Hong Kong and US stocks and the entry of private equity management into the cash period promote high profit growth. 1) the company has the ability of comprehensive investment banking services in the whole market (Hong Kong stocks / US stocks / A shares) + full cycle (start-up + growth + maturity + second-tier); IPO business after years of construction, superimposed innovation economy listing tide, underwriting income ushered in high growth. 2) by the end of last year, the company had a management scale of 57.4 billion yuan (generating a management fee of 21.9 billion yuan). RMB and US dollar funds were being raised in 2021-22, and we expect the company's management fee income to continue to increase. In addition, by the end of last year, the company had not realized a net carried interest of ~ 1.6 billion yuan, which we expect to be gradually released in the next 3 years.
3) with the jump in valuation brought about by the listing of the invested enterprises, the investment income of the company's capital management and investment will burst (930 million yuan in 2020 vs. 130 million yuan in 2019); the follow-up company plans to increase the proportion of follow-up investment in the newly raised funds to bring greater performance flexibility for investment income.
Compared with traditional securities firms, the company has outstanding characteristics in industry focus, business attributes and cultural mechanism. 1) the company focuses on the field of innovation economy, and the faster growth in the service field determines that the company has stronger growth than traditional securities firms; 2) relying on the light asset attribute of boutique investment banks and the high growth of business areas, the company can effectively support business expansion through on-hand capital and endogenous growth, achieving and maintaining a higher ROE level than traditional securities firms. 3) the elite culture, the marketization mechanism and the network effect accumulated in the field of deep ploughing and innovation economy work together to build the business barrier of the company.
What is the biggest difference between us and the market? We believe that the company is the scarce listed target to participate in the value creation of enterprises in the innovation economy in the primary market, and has the leading ability of asset creation and business closed-loop coordination; we have carried out a detailed split and sensitivity calculation of the investment management business with the greatest profit flexibility.
Potential catalysts: the wave of innovative economic enterprises listing and the good performance of the invested enterprises after listing; breakthroughs have been made in the company's A-share business and wealth management business.
Profit forecast and valuation
We estimate that the EPS of the company from 2021 to 2023 is 2.62,2.94,3.49 yuan respectively, and the CAGR is 23%. We give the company a target market capitalization of HK $12 billion based on segment valuation, corresponding to a target price of HK $25.50 and 43 per cent upside. For the first time, we give outperforming industry ratings.
Risk
The tightening of overseas IPO of China Innovation economy Company, the substantial adjustment of stock prices in the field of innovation economy, the higher-than-expected market competition and the uncertainty of regulatory environment.