Zhangjiang Science City is an important development entity, with huge development space

The company is an entrepreneurial service integrator engaged in industrial real estate operations, high-tech industry integration, and technology finance integration services. Real estate development and leasing is the company's main business. Operating income continues to account for more than 90% of the company's overall revenue, and the company is mainly located in Shanghai. Zhangjiang Science City is located in the Pudong New Area of Shanghai, and has a remarkable location advantage. According to the “14th Five-Year Plan for the Development of Shanghai Zhangjiang Science City” approved by the Shanghai Municipal Government in 2021, the planned area of Zhangjiang Science City is about 220 square kilometers. The planning position is to build a world-class science city with “obvious scientific characteristics, a concentration of scientific and technological elements, an environment, cultural ecology, and full of innovative vitality.”

We believe that as a state-owned listed company directly under the Pudong New Area, the company is the main developer of Zhangjiang Science City, the core carrying area of the Shanghai Science and Technology Innovation Center, and there is huge room for future development.

The leased area is steadily increasing, and business revenue has potential to grow

In terms of leased area, the leased area of properties owned by the company gradually increased, from 1.09 million square meters in 2018 to 1.33 million square meters in 2022, with a leased area CAGR of 5%. The rental income of 2023H1 was 500 million yuan, an increase of 29.7% over the previous year, and the rental income returned to normal. By the end of 2022, the company had 18 projects under construction, with an area under construction of about 3 million square meters. All projects under construction are scheduled to be completed within 3 years. We believe that with the gradual completion and launch of future projects under construction, the company's leasing area is expected to continue to increase, and the leasing business revenue has potential to grow.

Technology investment banking was built under the new three-business strategy, and industrial investment performance was gradually released. In 2014, the company proposed the “new three businesses” strategy, took “technology investment banking” as the strategic development direction, adhered to the development deployment of the “six major hard core industries” in the Pudong New Area, and built a “2+2+X” industrial system. The company's industrial investment scale has been steadily expanding. The cumulative industrial investment scale has increased from 7.7 billion yuan in 2021 to 8.713 billion yuan in 2023H1. By the end of June 2023, the company had directly invested in 53 projects, with an investment amount of 3,869 billion yuan, 25 participating funds, pledged and invested 4.844 billion yuan, leveraging a capital scale of 55.914 billion yuan. 2021-2023H1, the company's investment income continued to rise in operating profit, and 2023H1 reached 65%. The company's net investment income in 2023H1 was 327 million yuan, a sharp increase from turning loss to profit in 2022, driving the company's net profit to parent to a year-on-year increase, with a year-on-year increase of 1702%. The company integrates into the industrial chain and industrial ecology of Zhangjiang Science City in all aspects, and uses a “direct investment+fund+incubation” approach to aggregate market resources to promote industrial development.

Diversified financing channels and continuous optimization of financing costs

The company has diverse financing channels and has the advantage of bank-enterprise cooperation and investment and loan linkage in financial resources. The company's total amount of financing has gradually increased, and financing costs have continued to drop. By the end of 2022, the company's total financing was 201 billion yuan, an increase of 21.4% over the previous year. The financing cost was only 3.3%, and the company's financing advantages were remarkable. In addition, the company holds high-quality assets. In June 2023, it successfully completed the issuance work related to the expansion, and used a new type of public REITs financing method to revitalize the company's stock assets and provide financial support for the company's main business.

Profit forecasting and valuation

We expect the company's net profit to be 1,036, 11.93 and 1,376 billion yuan respectively for 2023-2025, corresponding to the 2023 EPS of 0.67 yuan/share. Taking into account the company's development space, investment strategy, and operational soundness, etc., we believe that the company should enjoy a valuation premium and have investment value. Covered for the first time, giving it a “buy” rating.

Risk warning

There is a risk of fluctuation in investment returns; competition for industrial real estate is intensifying; funding falls short of expectations.