The current situation of the company
Following the announcement on June 11, 2019 that Cinda intends to publicly transfer all the shares held by Happy Life, after it was listed on the Shanghai United property Exchange on October 14 (the base price was 7.5 billion yuan), the announcement on December 13 completed the listing procedure of the Shanghai Stock Exchange. 1. The property rights trading contract was signed with Chengtai Insurance and Dongguan Exchange Group at a price of 7.5 billion yuan, which is the same as the previous listing reserve price, which is currently subject to the approval of the Bank of China Insurance Regulatory Commission.
Comment
Impact on profits: happy Life lost 6.8 billion yuan in 2008, equivalent to 36% of Cinda's other pre-tax profits. In addition, Happy Life lost an average of 300 million yuan annually from 2018 to 2017. Assuming that the transfer of Happy Life is completed in 2020, according to the announcement, the company will receive about 7.5 billion yuan in cash for general working capital or future potential investment; after considering that Happy Life is no longer consolidated, the company will record a pre-tax profit of 4.42 billion yuan. This is equivalent to 19% of our pre-tax profit forecast for 2020.
Impact on valuation: this incident marks the implementation and promotion of Cinda's focus on the main business and the slimming of the non-bad sector. the company's divestiture of the non-bad sector, which is difficult to achieve profitability, no business coordination, and takes up capital, is conducive to the company's valuation repair.
Valuation proposal
Currently trading at 0.41 times 2019 and 0.39 times 2020, we believe that the current historically low valuations fully reflect market concerns about macroeconomic and asset quality decline. Considering the necessity of non-performing assets management industry, especially under the background of macroeconomic uncertainty, strict control of leverage risk and financial supply-side reform, we believe that in the long run, Cinda, as the leader of China's non-performing asset management industry, there are many business opportunities, including non-performing acquisitions and disposal, restructuring of troubled enterprises, local debt disposal, restructuring and trusteeship of small and medium-sized financial institutions, default bond disposal and so on.
Taking into account the recent increase in risk appetite in the H-share market, the promotion of non-bad business divestiture is conducive to valuation repair, we maintain the profit forecast unchanged, raise the target price by 9% to HK $2.30, and maintain the outperform industry rating, corresponding to 0.55 times 2019 Pmax B and 0.52 times 2020 Pamp B, an increase of 32%. Potential catalysts: 1) revenue and profit growth in 2019 rebounded steadily from 2018, to-11% and-37% respectively in 2018, and our forecasts for 2019 were 9% and 21%, respectively. 2) the dividend rate shall be maintained at 30%, corresponding to a dividend yield of 7.4% for 2020e. 3) orderly stripping of non-bad plates. 4) strengthen information disclosure and market communication.
Risk
1) the macroeconomic fluctuation increases, and the asset quality of the company is lower than expected; 2) the purchase price of the non-performing asset package or the business cost such as participating in the restructuring of the problem enterprise is higher than the market expectation.