The 1H19 performance is in line with our expectations
China Cinda announced 1H19 results: operating income of 53.3 billion yuan, down 3% year on year, up 2% month on month; Guimu's net profit was 8.7 billion yuan, up 1% year on year, up 154% month on month. The company's recent business focused on risk mitigation, quality and speed control, and a solid foundation. The company's stable performance was in line with expectations.
Development trends
The business division was redivided, and the original one and two sectors merged. Considering that the original second sector (investment and asset management) also mainly revolved around bad business, it was merged into the original first sector (non-performing asset management). The new non-performing asset business segment included 1) the acquisition of non-performing loan assets of financial institutions and non-financial enterprises and their management and disposal, 2) investment, management and disposal of debt-for-equity assets, 3) carrying out non-performing asset business through integrated management methods, such as restructuring problem institutions and problematic assets, special opportunity investment, etc., 4) fiduciary business. The original third sector (financial services) remained essentially unchanged, including banking, securities, futures, public funds, trusts, leasing, and insurance businesses.
Total assets increased 2% from the beginning of the year, and expansion was steady. 1) Total assets in the non-performing business sector fell 1% compared to the end of last year. Among them, acquisitions of non-performing assets fell 2%, acquisitions and restructuring fell 8%, and debt-for-equity swaps increased 7%. New acquisitions of operating non-performing assets fell 62% year-on-year to 17.6 billion yuan. It is expected that as purchase prices return to rationality and supply declines. At the same time, Cinda will carry out non-performing acquisitions based on its actual disposal capacity, and business expansion will be more cautious.
New acquisitions of restructuring-type non-performing assets fell 38% year-on-year to 31 billion yuan. 2) Total assets in the financial services sector increased by 1% compared to the beginning of the year. Cinda Leasing and Happy Life were downsized, and the scale of banks, securities, and trusts expanded.
Revenue and net profit were basically the same year over year. Revenue in the first half of the year fell 3% year on year. Among them, the bad sector fell 7% and the financial services sector grew 8%. 1) Non-performing income from acquisitions increased 20% year on year, thanks to accelerated disposal speed, disposal assets increased 39% year on year to 235 billion yuan; 2) Non-performing income from acquisitions and restructuring fell 7% year on year, mainly due to a slowdown in scale growth. Yield was 8.5%, up 0.4 ppt year on year, down 0.2 ppt from month on month; 3) Debt-for-equity revenue fell 27% year on year, mainly due to last year's high base. 4) Revenue from the financial services sector increased 8% year-on-year, mainly from banks, but profit growth was negative after extensive provision; revenue and profits from the insurance business improved.
Profit forecasting and valuation
The current stock price corresponds to the 2019/2020 net market ratio of 0.4 times/0.3 times, keeping the profit forecast unchanged. Taking into account changes in market risk appetite, the target price was lowered by 18.7% to HK$2.11, corresponding to 0.5x 2019e PB and 41% room for growth. Maintain an outperforming industry rating.
risks
The deterioration in asset quality exceeded expectations; returns on disposal of non-performing assets declined.