Introduction to this report:
The company's 2023H1 net profit declined year on year mainly due to the decline in heavy capital loan balance and average loan interest rates. The company's asset quality continued to improve, credit investment increased significantly, and performance is expected to increase.
Summary:
Maintain the company's “increase in holdings” rating and maintain the target price of HK$115.43, corresponding to 7.5 xP/E in 2023.
The company's 2023H1 revenue was RMB 7.514 billion (same unit), -11.64% year on year, adjusted net profit of 2.123 billion yuan, -5.57% year on year, and performance was in line with expectations. Considering the impact of falling loan interest rates, revenue for 2023-2025 was reduced to 156.59/185.10/20.969 billion yuan (200.16/230.14/26.191 billion yuan before adjustment), -5.4%/18.2%/13.3%, and adjusted net profit was reduced to 44.42/52.38/6.150 billion yuan (45.08/55.32/6.979 billion yuan before adjustment), 5.6%/17.9%/17.4%. Maintain the company's “increase in holdings” rating, maintaining a target price of HK$115.43, corresponding to 7.5xP/E in 2023.
The decline in heavy capital loan balances and average loan interest rates is the main reason for the decline in profits. The company's net profit fell 5.6% in the first half of 2023. From the analysis of profit drivers, revenue and costs contributed 785%/-641% respectively. The decline in revenue was the main cause of the decline in profit. The cancellation of guaranteed liabilities and asset-light loan matching and services contributed 560%/377% of revenue, respectively, which became the main reason for the decline in the company's profit. The reduction in the average on-going balance and reconciliation scale of the company's off-balance of heavy capital loans led to a year-on-year reduction in secured debt cancellation income and heavy capital loan matching and service fees, respectively, while lower interest rates led to a decrease in fees charged from financial institutions, which reduced the company's light capital loan matching and service fees by 22% year on year. The increase in the average loan balance in the table increased the company's financing income by +40% over the same period.
Asset quality continues to improve, credit investment has increased markedly, and the company's future performance is expected to increase. The economy is recovering steadily, the company continues to improve the quality of risk control and optimize the customer base, and asset quality has improved. The 90+ overdue rate in the first half of 2023 (1.84%) improved significantly compared to 2.03% in 2023Q1, and asset quality stabilized and improved. At the same time, the company's ABS issuance reached a record high, and overall capital costs fell to a record low. The company's credit investment in 2023Q2 reached 124.2 billion yuan, a sharp increase of 26.4% over the previous year. Of these, about 58% of the loans were provided through a light capital model. Under the steady recovery of the economy, the company continues to optimize business initiatives and promote business model and technological innovation. Credit investment is expected to increase further, and future performance is expected to increase.
Catalyst: In anticipation of economic recovery, asset quality has improved and loan disbursements have increased.
Risk warning: Regulatory policies have become stricter; product defect rates have increased dramatically.