(Original title: Haitong International: Shengye's scale growth and interest spreads were better than expected, and the disclosed asset quality indicators improved markedly)
On September 19, 2022, Haitong International released its latest research report, indicating that in the first half of 2022, Shengye (6069.HK)'s asset scale growth rate was more optimistic than expected. Future growth potential stemmed from industry expansion and replication and expansion of state-owned capital cooperation. The average daily supply chain asset balance was about RMB 8.3 billion, an increase of about 52% over the previous year, and the growth rate exceeded the bank's expectations. It is estimated that Shengye's average daily supply chain asset balance is expected to exceed 9 billion yuan in 2022, corresponding to an annual growth rate of about 48%. The better-than-expected net profit margin stems from a good ability to control financing costs. Measures include expanding capital partners and leveraging state-owned partners. Furthermore, the disclosed asset quality indicators have improved markedly.
The bank pointed out that in the future, if Shengye's cooperation with state-owned assets can be further expanded to replicate its cooperation model with Wuxi Guojin, the scale growth is expected to maintain a high level of growth.
The following is an excerpt from the research report:
occurrences
In the first half of 2022, Sheng Ye's adjusted operating income (excluding financing costs) increased 7.6% year on year, and net profit to parent increased 4.7% year on year.
reviews
Interest income increased 51.9% year over year, which is basically in line with our expectations. However, financing costs increased by 134.5% year on year, significantly exceeding our previous forecast of +12.9% year on year, mainly because the average daily loan balance increased by 109.8% compared to 2021, far exceeding the previous forecast of +15.0%. The company's leverage ratio (total debt/total equity) increased from 0.75x in the same period last year to 1.33x.
The growth rate of factoring assets is more optimistic than expected. Future growth potential stems from industry expansion and replication and expansion of state-owned cooperation.The average daily balance of factoring assets (including own capital and inclusive brokering) increased by 36.1% over the end of the previous year to 8.27 billion yuan. Compared with our previous forecast of 40% growth rate for the whole year, it is even more optimistic. According to conservative estimates, we think the average daily balance of factoring assets is likely to exceed 9 billion yuan, corresponding to an annual growth rate of about 48%. Among them, the average daily balance of self-funded loans and factoring assets increased by 48.9% over the end of the previous year to 6.63 billion yuan, and the average daily balance of platform inclusive matching increased by 1.1% over the end of the previous year to 1.64 billion yuan. The increase in the share of private capital loans is mainly due to the merger of Wuxi Guojin in late 2021. We expect the infrastructure industry to be the most important driver of factoring asset growth. At the same time, on the basis of focusing on the infrastructure, energy, and medical industries, the company is also already reserving data and capabilities to expand digital financial services in other industries. In the future, if Shengye's cooperation with state-owned assets can be further expanded to replicate its cooperation model with Wuxi Guojin, the scale of factoring assets is expected to maintain a high growth rate.
The better-than-expected net profit margin stems from a good ability to control financing costs. Measures include expanding capital partners and leveraging state-owned partners.The company's net profit margin fell 10 bp to 3.20% year over year. The average daily rate of return on factoring assets (-80 bp to 8.80% year on year) exceeded the decline in interest rates on loans (-10 bp to 3.20% year on year). Previously, we expected the net profit margin to drop by about 20 bps year on year. The gap was that the company's ability to control financing costs was better than expected. Compared with the end of 2021, the company added 5 financial partners to 91. Among banks with financial cooperation, we found that Shengye continues to expand the categories of partners, from urban commercial banks to major state-owned banks, and then to foreign banks. At the same time, state-owned cooperation with Wuxi Guojin also helps Shengye reduce overall capital costs.
Earnings from the sale of supply chain assets fell 28.0% year over year, falling short of expectations. This decrease in revenue was mainly due to a decrease in the rate of return on the transfer of supply chain assets and the total amount of supply chain assets sold.
Platform service revenue increased 26.1% year over year. Even considering the impact of the Wuxi International Financial Merger on the average daily balance, we found that the platform-based service fee rate increased by 42 bps over the previous year, 91 bp to 3.37% over the full year of 2021.
The disclosed asset quality indicators have improved markedly.Compared with the end of 2021, the proportion of loss-making supply chain assets decreased by 19 bp to 0.10%, and the share of supply chain assets on the watch list decreased by 101 bp to 1.38%. We recommend investors pay attention to rollover rate metrics not disclosed in the company's annual report.
Risk:The growth in the scale of factoring assets fell short of expectations, cost control fell short of expectations, and asset quality fell short of expectations.