Estimated net loss of 49.93 million yuan in 2022
We expect China Renaissance Holdings Ltd. 's income in 2022 to be-47% to 1.33 billion yuan compared with the same period last year, with a net loss of 49.93 million yuan, mainly due to the severe situation in the overseas primary and secondary market and the pressure on the company's investment bank and investment income.
Pay attention to the main points
Investment management: market pressure is expected to drag on investment income, but may improve in the second half of the year. We estimate that the company's investment management division's income in 2022 is-38% to 560 million yuan compared with the same period last year, of which, 1) We expect a loss of 43.76 million yuan on investment income (1H22 income 5824 yuan vs. 1H22 loss of 100 million yuan), mainly considering that the Hong Kong and US stock market will remain under pressure in the second half of the year (Hang Seng Technology / NASDAQ index-15.2% Compact 5.1% respectively) 2) by the end of 1H22, the fourth phase of the company's US dollar fund has raised US $800 million and RMB 4 has completed the first hurdle of 3 billion yuan. AUM (FEAUM), which generates management fees, is 15 to 27.3 billion yuan higher than at the beginning of 2022. Considering the impact of the epidemic in the second half of the year and the increase in investor risk aversion, we expect that the fund-raising rhythm of the company may also be affected to a certain extent under the depressed fundraising sentiment in the overall market. 3) carried interest has not been included in the statement or become one of the bright spots in the performance. As of the end of 1H22, the company has not realized net carried interest of 1.2 billion yuan, about half of which comes from withdrawing funds. We expect carried interest or accelerated inclusion in the second half of the year.
Investment banks: poor financing performance in the primary market is expected to be a drag on investment bank performance. We estimate that the revenue of the company's investment banking division in 2022 is-53% to 520 million yuan compared with the same period last year. Among them, stock underwriting, advisory services, sales / trading and brokerage year-on-year-87% Mather 39% Maxime 30% to 47.03 million yuan / 330 million yuan / 140 million yuan, mainly considering the sharp decline in the Hong Kong-US stock and private equity financing market in 2022 (Hong Kong stock IPO/ refinancing 67% year-on-year to HK $104.6 billion / HK $147.3 billion, US-listed IPO-96% to US $580 million).
Looking forward to 2023, it is optimistic that market sentiment will improve and exit channels will be broadened, and flexibility will be highlighted at a low base.
1) in terms of asset management business, with the improvement in sentiment in Hong Kong and US stocks (from the beginning of the year to February 3, the Hang Seng Technology / NASDAQ Index + 12.2% / NASDAQ 16.6% respectively), coupled with further diversification of secondary positions, we expect the company's investment income to rebound in 2023; at the same time, considering the registration reform and widening exit channels, we expect carried interest to continue the trend of 2H22 and continue to increase asset management income. 2) in terms of investment banking business, the company has actively improved its business layout and made steady progress in the market position in the cold winter of overseas markets; looking forward to 2023, with the smooth progress of market uplink and overseas regulatory cooperation, we expect the investment banking business to be significantly repaired. In addition, the domestic Huaxing Securities business benefits from the landing of the comprehensive registration system and the strengthening of its own competitiveness, business contribution or steady improvement. The company currently has a market capitalization of HK $5.8 billion (as of 2x3), while the total book cash as of 1H22 is 5.1 billion yuan, the valuation safety margin is obvious, we are optimistic about its performance and valuation rebound potential, and suggest the left layout.
Profit forecast and valuation
Due to the adjustment of investment income and market financing assumptions, the profit of 22Compact 23e was reduced by 111% to-50 million / 740 million yuan, and 24e profit of 840 million yuan was introduced. The company trades on 23e/24e 6.7x/5.8x Pamp E, maintaining an outperform industry rating, taking into account the stock price implied short-term performance pressure on expectations, while the market improvement brings valuation flexibility, maintaining the target price of HK $12.7 (8.6x/7.3x 23e/24e Pmax E, 25% upside).
Risk.
The market fluctuates sharply, the competition in the industry exceeds expectations, and the regulatory environment is uncertain.