Matters:

The company issued a share repurchase announcement. On October 23, 2023, the board of directors decided to exercise the authorization to repurchase shares. From the date the resolution was passed, no more than about 430 million shares will be repurchased on the open market. The repurchased shares will be arranged for cancellation after delivery of such repurchases. We believe that Yuandong Hongxin's decision to repurchase shares shows the company's judgment that its internal value is higher than the market value. If the plan is implemented, it will help increase the net asset value and profit return of each share. We expect its net profit from 2023-2025 to be 65/69/74 billion yuan, a year-on-year growth rate of 6.1/6.7/ 6.2%; diluted EPS is 1.51/1.61/1.71 yuan; the current stock price corresponding to PE is 3.6/3.3/3.1x and PB is 0.5/0.4/0.4x. The company's current dividend rate is high, maintaining a “buy” rating.

Commentary:

The company plans to repurchase shares

Yuandong Hongxin issued a share repurchase announcement today. The announcement stated that on June 7, 2023, shareholders had reviewed and approved general and unconditional general authorization to directors to repurchase shares not exceeding 10% of the total number of issued shares in the company's share capital at that date (that is, a total of 431748386 shares). The authorization to repurchase shares will expire on the following dates (whichever is earlier): (i) at the end of the next annual general meeting of shareholders of the Company; (ii) on the date for which the next annual general meeting of shareholders of the Company must be held in the articles of association or other applicable law; or (iii) the date on which the authorization to repurchase shares is withdrawn or amended by an ordinary resolution passed by shareholders at the general meeting of shareholders. On October 23, 2023, the board of directors decided to exercise the authorization to repurchase shares. Starting from the date the resolution was passed, the number of shares authorized to repurchase shares does not exceed the number of shares authorized for the repurchase of shares on the open market with existing internal financial resources. Shares repurchased by the Company will be cancelled by the Company's Hong Kong Stock Registrar and Transfer Office, Hong Kong Central Securities Registration Limited, as soon as is reasonably practicable after delivery of such repurchases. The company also warned that whether the company will exercise its share repurchase authorization depends on market conditions and will be at the absolute discretion of the board of directors. There is no guarantee of the timing, quantity, or price of any share repurchases, or whether the Company will carry out any share repurchases.

The share repurchase plan shows the company's judgment that the internal value is higher than the market value. We believe that Yuandong Hongxin's decision to repurchase shares shows the company's judgment that its internal value is higher than the market value. Share repurchases reflect the company's long-term confidence in business development. If the plan is implemented, it will help increase the net asset value and profit return of each share, which is in the interests of shareholders.

The company's performance growth has remained relatively stable. Currently, it has a high dividend rate, and the performance performance of companies with safe valuation margins is relatively stable this year. Among them, net profit for ordinary shareholders was 3.07 billion yuan in the first half of the year, an increase of about 8% over the previous year; the annualized ROA for the first half of the year reached 1.97%, an increase of 0.17 percentage points over the previous year; and the annualized ROE for the first half of the year was 13.3%, which remained stable over the previous year. The first half of the year achieved a net interest yield of 4.42%, down 7 bps from the previous year, and maintained a good performance in the face of downward pressure on net interest spreads across the industry. Furthermore, the company's interim report disclosed a bad rate of 1.05%, an attention rate of 6.53%, provision coverage rate of 235%, and the performance of asset quality data was basically stable.

Regarding the performance throughout the year, the company also announced that it will continue to maintain the principles of prudent management and management, always adhere to the “finance+industry” development strategy, put operational safety first, continuously improve operational efficiency, consolidate business quality, and strive to achieve steady development throughout the year.

Currently, the company's valuation is at a low level, but the company's dividend rate has been basically stable in recent years. The dividend rate calculated based on the 2022 dividend is about 9%, and the characteristics of high dividends are obvious.

Investment advice

We believe that Yuandong Hongxin's decision to repurchase shares shows the company's judgment that its internal value is higher than the market value. If the plan is implemented, it will help increase the net asset value and profit return of each share. We expect its net profit from 2023-2025 to be 65/69/74 billion yuan, a year-on-year growth rate of 6.1/6.7/ 6.2%; diluted EPS is 1.51/1.61/1.71 yuan; the current stock price corresponding to PE is 3.6/3.3/3.1x and PB is 0.5/0.4/0.4x. The company's current dividend rate is high, maintaining a “buy” rating.

Risk warning

The weakening of the macroeconomic situation may adversely affect the quality of the company's assets; there is uncertainty about the implementation of share repurchases.