Performance review
Mid-term results in 2022 are lower than we expected.
The company announced its mid-term results in 2022: mid-2022 income of 237.7 billion yuan, an increase of 5% over the same period last year. The net profit of returning to the mother in the middle of 2022 was 2.1 billion yuan, down 55% from the same period last year, mainly affected by the fluctuation of the capital market in the first half of 2022. The fair value of some investment projects in the industrial incubation and investment sector declined.
Trend of development
The performance of industrial operation is sound. The industrial operation plate includes Lenovo Group Limited, Lianhong Group, Jiawo Group and Luxembourg International Bank, which are controlled by the company. In the first half of 2022, the income of the industrial operation sector was 235.8 billion yuan, an increase of 4% over the same period last year, and the contribution of home net profit increased by 22% over the same period last year. Among them, Lenovo Group Limited's income was 217.8 billion yuan, an increase of 3% over the same period last year. PC business income remained the first in the world, and non-PC business income also accounted for 37% in the second quarter. Lianhong Group completed the EVA upgrade and transformation in the first quarter under the guidance of the "double carbon" policy, improving its profitability, and its revenue increased by 15% over the same period last year. Jiawo Group's revenue increased by 15% compared with the same period last year, promoting the "big product" strategy and expanding the market share of e-commerce channels; the assets managed by Luxembourg's international banks declined slightly due to fluctuations in the capital market. The company is based on the long-term development of IT, new materials, livelihood consumption and financial services industries, and we expect the company's industrial operation sector to maintain steady growth in 2022.
Industrial incubation and investment are affected by the capital market. Due to the increasing volatility of the capital market in the first half of 2022, the fair value of its investment projects decreased, and the net loss of industry incubation and investment sector during the reporting period was 3 million yuan. We believe that a number of potential enterprises have been accumulated in the sector. during the reporting period, Junlian Capital raised 3.5 billion yuan and invested 26 new projects, and Lenovo Star invested 20 new projects, covering biomedical, digital medical and other directions. As of August 15, 2022, the company has promoted a total of 12 listed companies this year. Management said that 45 companies were selected in the fourth batch of national specialty and special new enterprises list.
Profit forecast and valuation
We keep our income forecasts basically unchanged for 2022 and 2023. Considering that the capital market valuation repair may still affect the fair value of the companies invested in, we reduce the 2022 net profit by 41% to 4 billion yuan and the 2023 net profit by 11% to 7.2 billion yuan. We maintain our outperforming industry rating by lowering our target price by 25% to HK $12 (raising the holding company's discount to the market capitalization of subsidiaries based on the segment valuation method), corresponding to a price-to-earnings ratio of 3.4 times 2022 pesos in 2023, which has 34% upside compared to the current share price. The current share price corresponds to a price-to-earnings ratio of 4.4 times 2023 / 2.5 times 2023.
Risk.
Uncertainty of IT and innovative consumer business; volatility of capital market.