Performance review

1H22 performance is in line with our expectations

China Cinda announced 1H22 results: revenue was unchanged at 41.3 billion yuan compared with the same period last year; net profit from home fell 33% to 4.5 billion yuan from the same period last year, mainly due to increased provisions; the disclosed values of annualized ROAA and ROAE were 5.75% and 0.64% respectively, and the core tier one capital adequacy ratio was 11.24%. The results are in line with the previous profit warning. Overall, the company's profits are under pressure due to the downward return on assets and the exposure of some assets, but we also see continuous tuning of the company's asset structure and a drop in the pressure of high-risk assets. Looking to the future, we continue to pay attention to the rhythm of the generation of impaired assets, waiting for the inflection point to come.

Trend of development

The acquisition and operation of non-performing debt assets will be increased. The fair value of 1H22 non-performing debt assets decreased by 25% compared with the same period last year, of which the fair value of acquired operating assets accounted for 76%, down 31% from the same period last year, mainly due to the decline in IRR, with a 1H22 of 8.4% in 2021, 8.2% in 2021 and 11.8% in 1H21.

1H22 increased its acquisition of operating assets by 26.2 billion yuan, up 20% from the same period last year, and disposed of and acquired operational assets of 28.7 billion yuan, down 4.7% from the same period last year. At the end of 1H22, 209.5 billion yuan of operational assets accounted for 13.6% of the total assets, an increase of 0.7ppt over 2021, reflecting the company's continued efforts in its core business. According to our research feedback, the purchase price of 1H22 is slightly higher than at the end of last year, but still maintains a 3-60% discount.

The scale of the acquisition and restructuring business has been further reduced. The income of non-performing debt assets measured by amortized cost in 1H22 decreased by 27% compared with the same period last year, which is the interest income and disposal loss arising from the acquisition and reorganization of non-performing debt assets. The decline in income is mainly due to a decrease of 23.7% in the scale of such assets compared with the same period last year, which is 6.7% lower than that at the end of last year. Companies with such assets insist on prudent investment and increase risk resolution. In addition, this kind of income was also affected by the increase in impairment assets under the influence of the epidemic and macro-economy. the proportion of impairment of acquisition and reorganization assets increased to 7.64% from 4.75% at the end of 2021, although the provision provision increased. However, the provision coverage rate still decreased from 202.1% at the end of 2021 to 152.5%. The generation of impairment assets may be related to real estate risk exposure. Real estate accounts for 44% of acquisition and reorganization assets. Manufacturing accounts for 12%.

The size of bonds payable in liabilities decreased. The bonds payable at the end of 1H22 decreased by 50.9 billion yuan compared with the end of 2021, and the proportion of liabilities decreased from 27% to 24%. This is mainly due to the fact that the company optimizes the size of liquidity reserves and appropriately adjusts the pace of debt financing under the background of loose external liquidity. Among them, the ABS issued by financial assets based on amortized cost has decreased, and the scale of financial bonds has also decreased. The scale of interbank certificates of deposit, corporate bonds and medium-term notes with lower interest rates has increased. The scale of borrowing is down 6.3 billion yuan from the end of 2021, accounting for a stable level of about 41 per cent. We estimate that the cost ratio of 1H22's interest-paying debt is 3.12%, down slightly from 3.30% in 2021 and 3.17% in 1H21.

Profit forecast and valuation

Taking into account the macroeconomic fluctuations made it more difficult to dispose, we basically maintained the 2022 profit forecast and lowered the net profit by 5.2% to 9.7 billion yuan in 2023. The current share price corresponds to 0.2 times / 0.2 times price-to-book ratio in 2023. Maintain the neutral rating and the target price of HK $1.31, corresponding to 0.3 times 2022 and 0.3 times 2023, which has 19.1% upside compared to the current share price.

Risk.

The proportion of impairment assets is higher than expected.