Company profile:
Haitong Hengxin is a large-scale financial leasing company in China. It is the only leasing platform and an important strategic segment of Haitong Securities. According to Frost & Sullivan's data, based on total revenue in 2017 and total assets as of December 31, 2017, the company ranked third among foreign-invested financial leasing companies approved by the Ministry of Commerce. SBI Hong Kong, Shanghai Johnson & Johnson, and Guosheng Hong Kong have signed cornerstone investment agreements with the company, subscribing to 10 million US dollars, RMB 300 million and RMB 400 million worth of shares respectively.
The views of China and Thailand:
China's financial leasing industry has huge room for development: According to Frost & Sullivan's data, China's financial leasing contract balance is expected to reach RMB 11.35 trillion in 2023, achieving a compound annual growth rate of 11.3%. The penetration rate of China's financial leasing industry (the ratio of total value of leased assets to total fixed asset investment) is still low. In 2016, the penetration rate of China's financial leasing industry was 8.8%, while the penetration rates of the United Kingdom and the US were 33.7% and 21.5% respectively. The financial leasing industry is an emerging industry within China's financial sector and is still in the early stages of development. Compared with implementing strict bank credit standards and loan approval processes, financial leasing is more beneficial for micro, small and medium-sized enterprises with limited guarantees to obtain medium- to long-term financing, relieve pressure on initial capital expenditure, and at the same time help them revitalize fixed assets and improve asset flow efficiency. Furthermore, in recent years, the Chinese government has issued a series of documents and policies to guide and support the development of the financial leasing industry.
In terms of operating performance: In the 2016-2018 fiscal year, Haitong Hengxin achieved operating income of RMB 3.163 billion, RMB 4,037 billion, and RMB 5.332 billion respectively, of which nearly 70% of revenue came from financial leasing; net profit margins were 26.84%, 31.00%, and 24.59% respectively. The decline in 2018 was due to a decrease in tax-free income and an increase in non-deductible expenses due to income taxes and fees. In terms of the remaining period of minimum receivable financial leases, the growth rate of those due within one year is faster than those that expire in more than one year, mainly due to the rapid expansion of the scale of commercial vehicle and passenger vehicle financial leasing services for small and micro enterprises and individual customers, and the financial lease agreement period for such businesses is usually relatively short.
In terms of valuation: Based on the calculation of 5.794 billion H shares after the global public sale, the market value of the company's H shares was HK$10884-12.052 billion, which is lower than that of its Hong Kong stock peers. The price-earnings ratio of the company is about 7.2-8.0 times, which is higher than the industry average; the net market ratio is about 1.00-1.09 times, which is higher than the industry average. In terms of profitability, ROE and ROA in 2018 were 10.58% and 1.84% respectively, slightly higher than the industry average. Based on the company's position in the industry, performance and valuation level, we gave it 68 points, and the rating was “neutral”.
Risk warning: (1) Market competition risk (2) China's macroeconomic and government policy impact (3) Risks relating to small and micro enterprise customers and individual customers