1H23 performance fell short of our expectations
China Cinda announced 1H23 results: 1H23 revenue fell 16.9% year on year, net profit at home fell 9.8% year on year, annualized ROAE disclosure value was 4.5%, down 1.25 ppt year on year. The performance fell short of our expectations, mainly due to the decline in other bad business revenue and inventory sales revenue. Although current profits are under pressure due to the impact of the macroeconomic situation, we are concerned that the company is optimizing the asset structure while speeding up business expansion and upgrading, promoting the “10 provinces and 12 cities” comprehensive marketing activities, building a poor ecosystem, and shifting to an asset-light model of management services. We continue to pay attention to future trends in profitability restoration.
Development trends
Prudent investment in acquisitions and operations. The year-on-year growth rate of 1H23's new acquisitions of non-performing operating assets slowed to 2%, mainly due to the decline in the scale of new acquisitions by non-bank financial institutions. The company maintains a prudent risk appetite and regulates investment intensity based on business needs. 1H23 The change in the fair value of the acquisition of operating assets decreased by 14.1% year-on-year, and the internal rate of return decreased by 0.2ppt/month-on-month for half a year and increased by 1ppt to 8.2%.
Acquisitions and restructuring businesses focus on scale pressure reduction. The company actively optimized its asset structure. The 1H23 acquisition of restructured non-performing assets had a zero new acquisition scale. It focused on reducing stock and business scale. The total amount of assets acquired and restructured at the end of the period decreased by 22% compared to the beginning of the year. Affected by the drop in scale pressure, 1H23's acquisition and restructuring business revenue fell 30% year on year, and the average monthly annualized yield fell 0.6ppt/1ppt to 6.8% year over year.
The decline in revenue was mainly due to changes in the valuation of other non-performing assets and inventory sales revenue. 1H23 The change in the fair value of non-performing debt assets fell 54% year on year. The main drag was that income from other non-performing assets fell 3.3 billion yuan year on year. We expect a decline in valuations due to the macroeconomic situation and poor prosperity in some industries.
In addition, 1H23 inventory sales revenue fell 70% year over year, mainly due to the reduction in the scale of projects delivered by Cinda Real Estate, which is in line with the trend in the real estate industry.
Credit costs have declined. 1H23 asset impairment losses fell 47% year on year; the impairment ratio of non-performing assets acquired from acquisitions increased by 3ppt to 11.2% compared to the beginning of the year, mainly due to a marked drop in total pressure on non-performing assets acquired by the denominator. Molecular impairment assets increased slightly by 6% compared to the beginning of the year; the provision coverage rate fell 10ppt to 131% from the beginning of the year; the scale of the real estate industry at the end of 1H23 fell 8% year on year, accounting for 56.1%. At the end of 1H23, the non-performing asset overdue rate measured at amortized cost increased by 4.4ppt to 17.2% compared to the beginning of the year, and the overdue rate of investment products increased by 0.6ppt to 5.3% compared to the beginning of the year.
After excluding deposits, the cost of debt continued to decline. At the end of 1H23, we estimated a year-on-year increase of 18 bp to 3.29% in debt costs. We think it was mainly because interest rates on deposits at the Southern Commercial Bank were affected by the US dollar interest rate hike and the Hong Kong dollar interest rate increase. After excluding deposits, we estimated that 1H23 debt costs fell by 17 bps to 3.50% year-on-year, and the company continued to reduce financing costs through structural adjustments and other measures.
Profit forecasting and valuation
Considering the company's careful regulation and investment efforts, we lowered 2023E/2024E net profit by 2%/6% to 6.3 billion yuan/6.3 billion yuan. The current stock price corresponds to 0.17x/0.17x 2023E/2024E P/B. Maintaining a neutral rating, due to phased pressure on the company's profits, we lowered our target price by 21% to HK$1.0, corresponding to 0.21x/0.21x 2023E/2024E P/B, which is 25% upward from the current stock price.
risks
The pressure on asset quality was greater than expected.