The company disclosed its 2021 mid-year report:
The 1H21 fiscal year results were in line with previous earnings, with revenue +40% to HK$2.51 billion (same below), and shareholders' net profit +55% to $940 million (we expect $890 million). The main factors of strong profit growth were: 1. Driven by the wealth management business engine, revenue surged 49% to $990 million; 2. Corporate financing revenue rose 53% year-on-year to $384 million; 3. The investment management division turned profit from loss to $225 million from the second half of last year.
EPS was 0.1 yuan, the cost to revenue ratio decreased by 5% to 56%, the payout ratio remained stable at 51%, the leverage ratio was 5.56% (+1.34% YoY), and the annualized ROE was 12.2% (+2.8% YoY).
Wealth management transformation has achieved remarkable results
Since the transformation of corporate brokerage to wealth management in '17, segment revenue has been very effective. Segment revenue has shown accelerated growth, reaching HK$994 million (up 27% year over year), of which brokerage revenue was $466 million, +68% year on year. Overall customer turnover increased 70% year on year, faster than the 60% year-on-year increase in Hong Kong stock trading volume over the same period. The amount of client assets has reached 235 billion yuan, the asset management volume of customers over 8 million accounts for 93%, and revenue generated per unit of ordinary paying customer (ARPU) is 4,370 US dollars. The share of the Hong Kong stock brokerage market has continued to increase over 2 years. The company has successfully switched from a brokerage channel brokerage in the past to a comprehensive financial service provider, and management expects the wealth management business momentum to continue to be strong.
The anti-cyclical nature of revenue and profit increased. The company's fee commission business was strong, with strong performance in the fee commission category accounting for 39% (up 60% year on year), interest income accounting for 51% (-4% year on year), and trading and investment accounting for 10%. Looking at the segmental structure, wealth management accounted for 40%, institutional investor services accounted for 36%, corporate financing services accounted for 15%, and investment management accounted for 9%. The revenue structure was more balanced, and anti-cyclicity was further strengthened. The corporate finance segment reversed last year's decline, with a year-on-year increase of 52% to 370 million yuan (-26.8% for the whole of last year). Among them, the debt capital market increased +30% to 270 million yuan, and the stock capital market business surged 243%.
Management said that 11 of the company's stock underwriting projects were declared in the second half of the year, and 8 projects were exclusively sponsored. Asset management fees and performance fees increased 2.5 times to 80 million yuan, AUM +8% to 9.1 billion yuan, while the growth rate of financial products declined slightly (-5%) due to maturity fees for some products.
Interest income declined slightly, and trading investment revenue rebounded strongly
Interest income reached $1.27 billion (-4% year-on-year), and the company's total loan financing balance was +80% year-on-year to $28 billion. Among them, revenue from client-counterparty financing loans (including financing products such as margin loans, IPO loans, etc.) rose 21% year on year to HK$43 million, and margin balance reached 17.7 billion yuan; interest income from financial products rose 86% year on year to 172 million yuan; the government pushed mainland real estate companies to reduce leverage Rate, bond coupon revenue from market-making business fell 30% year over year to HK$319 million.
The trading investment business rebounded strongly year-on-year. Among them, market-making losses were 0.7 billion yuan, and investment securities (seed funds, private equity funds, etc.) turned a loss of 325 million yuan from the same period last year. The quality of the company's assets has improved markedly. 1H's provision was reduced by 80 billion yuan, which is a significant reduction from 360 million yuan for the full year of last year.
Maintaining the buying rating, the target price rose to HK$1.83
The company developed steadily among Chinese brokerage firms in Hong Kong, the revenue structure became more diversified and the resistance to cyclical growth. ROE was leading and dividends were stable throughout the year. We raised the company's net profit in 2021 to $1,953 million (+16%), increasing the company's 21-23E EPS to HK$0.21/0.25/0.26 (the original 2021/202E EPS was $0.18/0.21/0.21), using DDM and relative valuation methods to give an average target price of HK$1.83, corresponding to 1.04X 202EPB.
Risk warning: (1) investment returns fall short of expectations due to sharp fluctuations in the financial market; (2) the market continues to be sluggish
