Main points of investment:
The only pure bidding in the market, the performance contribution mainly comes from the exit income of the project. Venture capital business is the main source of profit for the company, including listed projects that have been lifted and investment projects that have been withdrawn by mergers and acquisitions, while abrasives business accounts for a relatively low proportion.
In 2012, the company ushered in the peak period of listing and withdrawal of investment projects, three projects were listed, contributing 286 million yuan to investment income, while there was no project for IPO in 2011-2014, but considerable investment income was obtained through the reduction of holdings in the secondary market. Of this total, 79% of the net profit was contributed in 2014. The investment income of the unwithdrawn projects in 2015 and 2016 was 327 million yuan and 216 million yuan respectively, and the investment income from the reduction of stocks in 2015 accounted for 145% of the net profit of that year.
The gradual acceleration of IPO and the construction of multi-level capital market are beneficial to the venture capital industry. The main exit methods of venture capital in China are new third board, IPO and equity transfer, accounting for 14%, 62% and 8% respectively in 2016. Since August 2016, the speed of IPO audit in China has been significantly accelerated, which is conducive to shortening the exit cycle; the implementation of the new three-board hierarchical system will further improve the liquidity and enhance the valuation of listed enterprises, and the space for the project to be listed through the new third board will also be greatly expanded.
Taking retreat as the outline, the project reserve is rich, and the floating surplus of listed projects will effectively support future performance growth. At present, the company holds a total of 10 unwithdrawn IPO projects, 9 proposed IPO projects and 18 new third board listing projects. Among them, four proposed IPO projects have been reported to the CSRC and or accepted. The IPO project provides a strong support to the performance. The investment income of the projects that have been withdrawn in 2016 has exceeded 200 million, and the net profit attributable to the whole year is expected to reach 336 to 448 million yuan, an increase of 50% to 100% compared with the same period last year. In addition, in the case of the gradual acceleration of IPO audit, the exit channel is smoother, and the company's performance is expected to accelerate with the increase of exit projects. At the same time, the company invested 808 million yuan and 423 million yuan in 2015 and 2016, and these projects will also enter a rapid harvest period.
The controlling shareholders are strong, or they may benefit from the reform process of state-owned enterprises in Shandong Province. The actual control of the company is Shandong SASAC, and the controlling shareholder Luxin Group is an important state-owned financial group in Shandong Province, covering securities, trust, leasing, venture capital and so on. As the only listed financial asset platform of Luxin Group, the company may benefit from the reform process of state-owned enterprises in Shandong Province in the future. In addition, the company participates in 6.25% and 4.54% of Shandong International Trust Company and Minsheng Securities respectively.
For the first time, the overweight rating was given. Due to the long profit cycle of the venture capital industry, as the exit channel is smoother, the listed projects more effectively support future performance growth, the proposed IPO and the new third board listing project will bring considerable investment income for the company with the flexible exit channel mechanism. As an important listing platform under Shandong SASAC, the company may benefit from the reform process of state-owned enterprises in Shandong Province in the future. The segment valuation method is used to evaluate the company's own capital investment, fund management, Shandong international trust equity and Minsheng securities equity respectively, in which the first two parts use the market value revaluation method, and the financial equity part uses the PB method. Through the revaluation of the market value of the project, the conservatively estimated reasonable value is 20.6 billion, corresponding to the value of 27.7 yuan per share, which has a high margin of safety, and the revaluation value of the project is improved and has great upward flexibility in the case of upward market. It is estimated that the company's 2016-2018 EPS is 0.54, 0.67 and 0.86 yuan respectively.
Risk hint: large fluctuations in the capital market led to lower-than-expected performance promotion.