Event
In the first half of 2022, the company's adjusted operating income (excluding financing costs) increased by 7.6% compared with the same period last year, and its net profit increased by 4.7% compared with the same period last year.
Comment
Net interest income in digital finance solutions fell short of expectations, mainly due to significantly higher-than-expected borrowing balances. Interest income increased by 51.9% over the same period last year, which is basically in line with our expectations. But financing costs rose 134.5 per cent year-on-year, significantly exceeding our previous forecast of + 12.9 per cent, mainly because the average daily borrowing balance increased by 109.8 per cent compared with 2021, far exceeding the previous forecast of + 15.0 per cent. The company's leverage ratio (total debt / total equity) rose to 1.33x from 0.75x in the same period last year.
The growth rate of factoring assets is more optimistic than expected, and the future growth potential comes from industry expansion and replication and expansion of state-owned cooperation. The average daily balance of factoring assets (including its own funds and Pratt & Whitney matchmaking) increased by 36.1 per cent to 8.27 billion yuan from the end of last year, which is more optimistic than our previous forecast of 40 per cent growth for the whole year. According to conservative estimates, we believe that the average daily balance of factoring assets is likely to exceed 9 billion yuan, corresponding to an annual growth rate of about 48 per cent.
Among them, the average daily balance of self-owned capital loan factoring assets increased by 48.9% to 6.63 billion yuan compared with the end of last year, and the average daily balance of platform Pratt & Whitney matchmaking increased by 1.1% to 1.64 billion yuan compared with the end of last year. The increase in the proportion of self-owned funds lending is mainly due to the consolidation of Wuxi International Gold at the end of 2021. We expect the infrastructure industry to play the most important role in the growth of factoring assets. At the same time, the company has been storing and expanding the data and capabilities of digital financial services in other industries on the basis of focusing on the infrastructure, energy and medical industries. In the future, if Shengye can further expand its cooperation with state-owned assets and copy its cooperation model with Wuxi Guojin, the growth of factoring assets is expected to maintain high growth.
The better-than-expected net interest margin stems from the good ability to control financing costs, including the expansion of capital partners and the use of state-owned partners. The company's net interest margin fell 10bp to 3.20% year-on-year. The year-on-year decline in the average daily return on factoring assets (from-80bp to 8.80%) exceeded the decline in borrowing rates (from-10bp to 3.20%). We had expected the net interest margin to fall by about 20bp year-on-year, and the gap lies in the company's better-than-expected ability to control financing costs. Compared with the end of 2021, the company added 5 capital partners to 91. Among the banks with capital cooperation, we find that Shengye continues to expand the category of partners, from city commercial banks to state-owned banks, and then to foreign banks. At the same time, cooperation with state-owned assets such as Wuxi Guojin also helps Shengye reduce the overall cost of capital.
Revenue from the sale of supply chain assets fell 28.0 per cent year-on-year, worse than expected. The decrease in this part of the income is mainly due to the reduction of the transfer rate of supply chain assets and the total amount of sold supply chain assets.
Platform services revenue increased by 26.1% compared with the same period last year. Even taking into account the impact of Wuxi Guojin consolidated table on the average daily balance, we found that the platform service fee increased 42bp compared with the same period last year, and increased 91bp to 3.37% compared with the whole of 2021, and the disclosed asset quality indicators improved significantly. Compared with the end of 2021, the proportion of loss-making supply chain assets decreased by 19bp to 0.10 per cent, and the proportion of supply chain assets on the watch list decreased by 101bp to 1.38 per cent. We recommend that investors pay attention to the rollover rate indicators that are not disclosed in the company's mid-year report.
Risk: the growth of factoring assets is not as good as expected, the cost control is not as expected, and the asset quality is not as expected.