The company is a leader in the domestic non-performing asset management industry, and its valuation is now at a historically low level, reflecting extremely pessimistic expectations of investors. After business adjustment, the company has now entered a recovery period, the future will be more focused on the main business of non-performing assets, flexible asset allocation capacity and rich business experience will be the company's long-term competitiveness. Maintain the "overweight" rating.
The net profit of homing in the first half of the year increased by 0.75% compared with the same period last year (net profit + 12.4%), which was significantly higher than that of last year (2018 net profit and net profit were-33.6% and-36.7%, respectively). It is mainly due to: 1) the increase in the scale of the disposal of non-performing assets of acquisition and operation, which brings an increase in income; 2) the insurance business turns from loss to profit; 3) the decrease of staff costs and the pressure of handling expenses. 4) the contribution to the performance of the joint venture and the joint venture company increased.
In the business of non-performing assets, the acquisition business accelerated the disposal and achieved a better growth of income, while the income of acquisition restructuring and debt-to-equity swap decreased compared with the same period last year. In the first half of the year, the net amount of non-performing debt assets decreased by 4.5% compared with the beginning of the year, specifically: 1) the acquisition and operation (TDA) assets decreased by 2.1%, mainly due to the fact that the scale of disposal (23.5 billion, more than 16.9 billion in the same period last year) was larger than that of acquisitions (17.6 billion, 45.9 billion in the same period last year), and the corresponding revenue increased by 20.4% over the same period last year. 2) the acquisition and restructuring (RDA) assets decreased by 6.9%, so the corresponding income also decreased by 7.3% compared with the same period last year. 3) the debt-to-equity swap business continued to actively expand, with assets increasing by 6.5% over the beginning of the year, but because the market situation in the first half of this year was not as good as that in the same period last year, the corresponding income also decreased (- 27% compared with the same period last year).
In financial services, the insurance business turned from loss to profit, while the rest of the business remained weak. 1) Happy Life's pre-tax profit improved from-10.8 billion in the first half of 2018 to 590 million in the first half of this year, which has become an important driver of the company's profit improvement. 2) South Commercial Bank's revenue increased by 15.9% compared with the same period last year, but pre-tax profit decreased by 12.3%, which is presumed to be related to increased provisions to deal with risk exposure (the company's loan impairment loss increased by 44% in the first half of the year compared with the same period last year, while the defective rate of Southern Commercial Bank also increased to 0.81% from the beginning of the year); 3) other pre-tax profits such as Golden Valley Trust and Cinda Leasing also declined to varying degrees (38% and 130% respectively).
In terms of cost, the decline in employee compensation has a positive contribution to profitability. 1) since the beginning of this year, the company has streamlined its staffing. At the end of the first half of the year, the number of active employees decreased by 3.4% compared with the same period at the beginning of the year (6.9% lower than at the beginning of the year), and their salary decreased by 23.8% compared with the same period last year. Thanks to the decrease in cost and income from the same period last year, the loss of asset impairment increased significantly (year-on-year + 9%), mainly due to an increase in provisions for loans and receivables. 3) interest expenses are basically flat compared with the same period last year, which can still be done even though the scale of interest-bearing liabilities has increased compared with the same period last year, which is presumed to be mainly due to the decline in market interest rates (borrowing interest rates decreased by 12% year-on-year).
Risk factors: higher-than-expected macroeconomic decline; risk of fluctuations in the real estate market; tighter regulation of AMC.
Investment strategy: the company is a leader in the domestic non-performing asset management industry, and its valuation is now at a historically low level, reflecting extremely pessimistic expectations of investors. After business adjustment, the company has now entered a recovery period, the future will be more focused on the main business of non-performing assets, flexible asset allocation capacity and rich business experience will be the company's long-term competitiveness. Due to the retroactive adjustment of the 2018 annual report, the forecast of EPS in 2019 is reduced to 0.30 yuan (the original forecast is 0.54 yuan), and the EPS in 2020 is expected to be 0.33 yuan, corresponding to the 20-year 4.56/4.05xPE and 0.36max PB in 2019, maintaining the "overweight" rating.