Investment income and performance rewards for old products may be realized at an accelerated pace in 2023, and new products are expected to reverse the downward trend in company management fees. 1) The company achieved a total of 660 million dollars of investment income confirmed under the Equity Law from Harmonious Jinhong and Harmonious Jinyu Investment Portfolios in 2022, compared to 390 million in '21, an increase of 69.5% over the previous year. Based on the fair value of the investment portfolio up to the end of 2022, the company generated a total investment income of about 1,266 billion yuan. Based on the income distributed at the end of the longest life period of the two funds, the company expects to receive over 800 million yuan in excess performance compensation. Since there is a possibility that the fair value of the two managed funds will fluctuate downward, the excess performance compensation was not confirmed in the company's 2022 financial report according to relevant accounting standards. With the steady increase in the performance of invested projects and the increase in projects withdrawn, the company's investment income will become more stable, and this part of the performance compensation is expected to be realized in 2023 and later. 2) The company's management fee revenue continued to decline during the period 2019-2022. The main reason is that with the withdrawal of projects for the first phase of the two products and the return of funds, the calculation basis for management fees (that is, the scale of management fees) continued to decline, but along with the accelerated calculation of investment income and performance compensation, which will effectively hedge against the impact of falling management fees, and as the Second Phase Product Harmony Green Fund completes subscription payments in 2023, the management fee measurement base will rise again. Management fee revenue may increase significantly.

The new product fundraising process was more than half completed or within 23 years, and the company's capital and products began to circulate. 1) The company announced in May '23 that Harmonious Green Industry Fund added Pujiang County Equity Investment Management Co., Ltd. as a new limited partner and will pledge an investment of RMB 500 million. The total target pledge of Harmonious Green Industry Fund is RMB 7.5 billion. As of the disclosure date of the announcement, the total amount pledged by the partnership was RMB 5.150 billion, which has completed 68.67% of the target scale, or may complete the fundraising process within the year. At the same time, considering that fund overfunding is a normal phenomenon in the industry, the company's goal is to combine the management ability of the first phase fund team and the state of the capital market to raise more capital and expand the management scale. 2) Since the company has only raised one phase of products (a total of 175 billion yuan) since 2017, with the continuous withdrawal of capital for the first phase of the product and the end of raising for the second phase of the product, the company officially began a cycle of capital and products, which is also the only way for the company to become a mature private equity management company.

The 23-24 EPS forecast was lowered from 2.77/3.72 yuan to 1.62/2.62 yuan due to delays in project fundraising/withdrawal, and an additional 25-year forecast of 3.55 yuan. Using the segmental valuation method, 1) Building materials: referring to the valuation of comparable companies, 10.0xPE was given in '23, with a corresponding target value of 1,693 billion yuan; 2) Private placement: Referring to the valuation of comparable companies, 16.0xPE was given in '23, with a corresponding target value of 17.023 billion yuan. The consolidated target was worth $18.716 billion, and the target price was lowered to $24.52 to maintain the company's buying rating.

Risk warning

New product fundraising/performance rewards fall short of expectations, there is uncertainty about changes in investment income/fair value, and there is a risk of declining valuations.