Report summary
The company, formerly known as Tianshun Securities, was acquired by a wholly-owned subsidiary of Minsheng Bank and Brilliant Decent Limited (the actual controller is Huarong, China) and then changed its name to Civil Bank Capital. Among them, CBC Holdings acquired 60.13% of the shares, and Brilliant Decent Limited acquired 6.23% of the shares. 1HFY18 CBC Capital turned a loss into a profit, and net profit from continuing operations reached HK$77.88 million (YoY +562%).
The company's business ushered in rapid development.
(1) Performance turned a loss into a profit. 1HFY18 Company's net profit from continuing operations reached HK$77.88 million (YoY +562%), mainly due to additional financial advisory business revenue (HK$33.41 million), underwriting business income (HK$7.12 million) and various types of investment income (HK$8.05 million), and a sharp reduction of 85% in tax expenses.
(2) The company focuses on developing investment business. 1HFY18's investment banking business revenue (financial advisory plus underwriting, etc.) reached HK$40.53 million, an increase of 184% over the previous year, accounting for 55% of revenue, which contributed to a significant improvement in the company's performance. Further completion of the company's business and personnel integration, such as the successive transfer of sponsor qualifications and the signing of related service agreements, will drive the company's investment banking business to continue to grow rapidly. It is estimated that FY18's investment banking business revenue can exceed HK$100 million.
(3) Asset Management Service Group customers, diversified investments and steady profits. 1HFY18's asset management and advisory revenue reached HK$21.1 million, accounting for 28% of revenue. If we make an optimistic estimate based on the recommended upper limit of the service agreement, the asset management business in 2018 could generate revenue of HK$41 million from the Group's clients alone. The company's investment assets are mostly fixed income products and priority products. Based on half-year results and investment conditions, it is estimated that FY18 investment income will be around HK$20 million.
(4) The rise in Hong Kong stocks is expected to boost brokerage credit business. Affected by the liquidation phase of the company's brokerage credit business during the settlement period of Minsheng Bank, interest income from 1HFY18 financing and margin financing fell to HK$21.95 million (YoY -18%, accounting for 29%), and commission income from brokerage and related services fell to HK$4.17 million (YoY -77%, accounting for 6%). With the completion of the company's business integration and the increase in trading volume and financing demand brought about by a record high in the Hang Seng Index, it is expected that brokerage and credit trading business revenue will rise to a total of about HK$60.79 million.
(5) Goodwill impairment has been confirmed, and costs will continue to improve. The impairment of the company's goodwill reached HK$540 million in FY2017. The company accrued asset impairment in one step. All deferred taxes have been paid, and future costs will improve.
Shareholders are rich in resources and have obvious competitive advantages. As a listed platform under Minsheng Bank, the company has a unique competitive advantage. First, Minsheng Bank provides convenient financing for the company, such as providing the company with HK$3 billion in credit support; second, customer and channel advantages. Minsheng Bank has a very complete and huge branch system in the mainland, and a corresponding broad and rich customer base, which helps the company to carry out various businesses; third, it has project resource advantages. The company can use Minsheng Bank's domestic and foreign commercial and investment banking platform advantages to develop a full range of financial services, especially providing one-stop investment banking for the entire industry chain Service; fourth, brand advantage. Minsheng Bank's brand advantage will lay a good foundation for the company to attract customers, retain customers, and serve customers.
Investment advice: Considering that the company has high growth prospects, we use a dynamic price-earnings ratio analysis method (that is, the PEG method) to calculate the company's target price: PEG calculated using FY19-FY20 to predict profit growth is 0.91, and the target price calculated based on PEG = 1 is HK$0.76. We believe that the company's shareholder background is scarce (the only Chinese brokerage firm with a Hong Kong banking background is JBC International), the business model has a comparative advantage (the bank's parent company provides support for capital, channels, customers, talents, and brands, especially low-cost financing advantages), group support (the Group attaches importance to the Bank's capital development) and market environment improvements (the Hang Seng Index has reached a record high) have enhanced the company's performance growth room. Under an optimistic scenario where the Hang Seng Index is rising and business integration and capital is quickly put in place, it is predicted that the company still has room to speed up by about 20 PCs. The corresponding target price is HK$0.86.
Risk warning: 1) Shareholder support is declining; 2) Market competition is becoming more intense; 3) Risk of investment loss; 4) Risk of concentration of accounts receivable; 5) Risk of reduction in holdings of shareholders holding low cost positions.
