Incident: The company disclosed its annual report, achieving operating income of 483.7 billion yuan (YoY -1.27%) in 2022, and net profit of 1.2 billion yuan (YoY -79.72%). The main reason for the sharp decline in net profit throughout the year: 1) The fair value of some investments declined. Fluctuations in global capital markets in 2022 led to a decline in the fair value of some investments in the industry incubation and investment sector. The sector's net profit contribution to the mother fell from 1.5 billion yuan in the same period last year to -2.3 billion yuan in '22. 2) Jiawo calculates goodwill and asset impairment preparations. Factors such as rising commodity prices and interest rate hikes by the Federal Reserve caused the company's subsidiary Jiawo Group to calculate a large amount of depreciation. The net profit contribution of Jiawo Guimu fell from 400 million yuan in the same period last year to -800 million yuan in '22.
Industrial operation: The overall operation of the core enterprise is steady. In 2022, the company's industrial operation segment achieved revenue of 479.573 billion yuan (YoY -1%) and net profit of 4.820 billion yuan (YoY -18%). Judging from the performance of the four core companies in this sector: 1) Lenovo Group contributed +4% to the company's net profit of 4.2 billion yuan over the same period last year. The PC business ranked first in the world, and the non-PC business grew rapidly.
2) Lianhong Group contributed 500 million yuan of net profit to the company throughout the year, which is expected to continue its leading edge in the field of new materials segmentation and contribute to a stable source of performance. 3) The International Bank of Luxembourg contributed +6% to 900 million yuan of net profit to the company throughout the year, and the scale of deposits and loans increased further. 4) Jiawo Group achieved revenue of +20% year-on-year to 21.6 billion yuan throughout the year, mainly benefiting from the fruit business developing new e-commerce retail channels.
Industry incubation and investment: Fluctuations in capital markets are dragging down the fair value of investment. In 2022, the company's industrial incubation and investment segment achieved revenue of RMB 4,095 billion (YoY +6%), and the return mother had a net loss of RMB 2,332 billion, mainly affected by the decline in fair value of some investments. Among them, 1) Junlian Capital raised 6.4 billion yuan in new capital in 2022, with an AUM exceeding 76 billion yuan. Eleven of the companies under management were listed on the capital market. 2) Nearly 70 projects managed by Lenovo Star received the next round of financing, with AUM exceeding 4.5 billion yuan.
Cash back is adequate, and the debt structure has been optimized. In 2022, the company returned about 8 billion yuan in cash through dividends and investment withdrawals. The balance ratio was -1.4pct to 85% year on year, and the total debt/total capital was -3 pct to 56% year on year.
Investment advice: Maintain a Buy-A investment rating. The pressure on the company's 2022 performance was mainly constrained by fluctuations in the fair value of investment and the depreciation of Jiawo's calculation. The company owns high-quality VC/PE institutions such as Junlian Capital and Lenovo Star. It invested in nearly 150 technology companies in 2022 and promoted the listing of 20 invested companies (mostly technology companies). It is optimistic that the company will significantly benefit from the accelerated listing of AI and other hard technology companies under the comprehensive registration system. We expect the company's 2023-2025 EPS to be $2.37, $2.61, and $2.86 respectively, with a six-month target price of HK$10, corresponding to 4.8 times the 2023 P/E (converted exchange rate).
Risk warning: capital market fluctuations, macroeconomic changes, listing progress of invested companies falling short of expectations, etc.