Cofco Capital is the comprehensive financial services platform of Cofco Group, with a simple combination of insurance, futures and trust, and the company is actively transformed to improve profitability, but the overall synergy effect is limited and the overall ROE level is not high.
Diversified Finance faces a valuation discount, giving a "hold" rating for the first time.
Cofco Capital is a comprehensive financial services platform under Cofco Group. Cofco Capital is a specialized company operating and managing financial business under Cofco Group, with insurance, trust and futures business as the core. At present, the main holding companies include Cofco Life, Cofco Trust, Cofco Futures, Cofco Jinke, Cofco Capital (Hong Kong), Longjiang Bank, Cofco Fund, Liangrun Investment and other financial and investment subsidiaries. The major shareholder of the company is Cofco, which holds 62.78% of the shares, and SASAC of the State Council is the actual controller of the company. In January 2019, Cofco Capital backdoor Zhongyuan Special Steel was listed on the Shenzhen Stock Exchange; on October 8, 2019, the company's stock acronym was officially changed from "Zhongyuan Special Steel" to "Cofco Capital". Revenue and net profit increased steadily after listing, and the performance was obviously under pressure in the first half of 2022 due to market fluctuations. In 2021, the company's homing net profit was 1.372 billion yuan, an increase of 30.26 percent over the same period last year. From 510 million yuan to 1.372 billion yuan in 2018-2021, the CAGR was 39.09 percent. 1H22's performance was under pressure, with a net profit of 281 million yuan, down 59.39 percent from the same period last year.
Profit structure: the dominant position of insurance has declined. In 2019-2022H, insurance business accounts for 66%, 39%, 35% and 28% of the net profit respectively, and the dominant position continues to decline; the proportion of futures business is 15%, 13%, 13% and 36% respectively, which is significantly higher in 2022H1; the proportion of trust business is 14%, 24%, 33% and 68% respectively. Driven by futures and trust business, the overall ROE of the company is improving, but it has been greatly affected by insurance and other business in the first half of this year. The ROE of 2019-2022H is 4.0%, 6.1%, 7.5% and 1.9% respectively (not annualized in the first half of 2022), and the overall level is still low.
Major sectors: insurance, futures, trust and other actively promote the transformation, the level of ROE needs to be improved.
Sino-British Life: the transition to life insurance and health insurance, the performance fluctuates greatly under the influence of investment. Founded in January 2003, the company is a joint venture between Cofco Capital and British Aviva Group, each holding a 50% stake.
From 2017 to 2021, the company's net profit CAGR was 21%. The new business value of Sino-British Life Insurance in 2021 is 477 million yuan, an increase of 85% over the same period last year. The operation of the company is relatively healthy, but in the multiple environments of sluggish demand, the impact of the epidemic, and an unfavorable investment environment in the insurance industry as a whole, profitability fluctuates, and net profit in the first half of 2022 is-65% compared with the same period last year.
Cofco Trust: after the positive transformation of the new regulations, the performance was repaired on the basis of a low base in 2018. The company was founded in 2009, and Cofco Capital holds a stake of 80.51%. The company's trust assets in 2021 were 146.1 billion yuan, down 25.2% from 159.3 billion yuan in 2017. The effect of removing the channel is obvious, which is in line with the regulatory trend.
On the whole, the scale of corporate trust assets is under pressure, and the company has made a deep transformation under the new regulations of asset management, and its profitability has gradually rebounded from 2018 to 2021, but the overall profitability is still not high.
Cofco Futures: taking brokerage business as the core, transforming to risk management and wealth management business. The company was founded in 1996, and Cofco Capital and China Life Insurance Company Limited jointly set up, holding 65% and 35% respectively. Cofco Futures builds a business development layout with brokerage business as "one", risk management business and wealth management business as "two wings". The company's asset scale has continued to grow since 2019, with H1 reaching about 30 billion yuan by 2022 and CAGR of 40.9% from 2019 to 2021. In 2021, the company achieved operating income of 6.93 billion yuan, an increase of 252.4% over the same period last year, and net profit of 281 million yuan, an increase of 35% over the same period last year. Due to the hot performance of the futures industry as a whole over the past two years, the company's profitability has increased, but the company's profits have fluctuated after the industry as a whole came under pressure in 2022.
The three major businesses are simply combined, lack of synergy, and are given a valuation discount based on diversified finance. The three core businesses of Cofco Capital Insurance, Futures and Trust are actually controlled by the company. If the company's registered capital is less than 5 billion yuan, it is not urgent to apply for a financial control license, but if we consider the long-term development of the company's size in the future, we may face the demand of applying for a financial control license, otherwise it will be restricted by the development scale or multiple licenses. The company's three major businesses are simply combined and lack of user-centered organic combination with each other. From a ROE perspective, the earnings cycle between different sectors can fluctuate moderately smoothly, but there is a lack of synergy, and we still don't expect the overall ROE level to exceed 10%.
Risk factors: large fluctuations in the market situation lead to performance fluctuations; impairment risk of long-term equity investment; financial and real estate recession may lead to increased credit risk; industry competition tends to be fierce and policies continue to tighten risks; after restructuring, the proportion of financial shareholders is high, and the lifting of the ban on restricted shares brings stock price pressure.
Earnings forecasts and investment ratings: diversified finance needs to consider valuation discounts, giving a "hold" rating for the first time.
Our company estimates that the total revenue of 2022E/2023E/2024E is 172%, 186%, 20 billion yuan, respectively, an increase of-13%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, 8%, Considering that the company's core main business is still in an industry transition period, and with reference to the lower end of the company's valuation range in the past year, we give the company a valuation of 0.8x PB in 2022, corresponding to the target price of 6.6 yuan, with a "hold" rating for the first time.