Yuandong Hongxin released its 2023 annual report. Operating revenue for 2023 was 37.960 billion yuan, a slight increase of 3.76% year on year, and net profit to mother was 6.193 billion yuan, up 1.04% year on year.
Financial Advisory Division: Investment in interest-bearing assets tends to be cautious, and the pressure on urban utilities has dropped significantly. (1) The share of urban utilities has been significantly reduced. By the end of 2023, the company's interest-bearing assets totaled 269.085 billion yuan, a year-on-year decrease of 0.56%. Among them, the share of urban utilities fell from 50.97% in 2022 to 39.82% in 2023, returning to pre-2020 levels. The share of engineering construction in the second-largest investment industry rose from 8.91% in 2022 to 13.64% in 2023. (2) The share of poor urban utilities and concerned assets increased in 2023, and interest-bearing assets in related sectors may continue to decline in the short term, but overall, the company's core indicators are relatively stable, which indicates to a certain extent that the company has strong management capabilities. The company's net interest spread and non-performing ratio were 3.98% and 1.04% respectively in 2023, changing 0.04pcts and -0.01pcts respectively from 2022. (3) The average cost of debt has increased due to overseas borrowing, rising from 4.06% in '22 to 4.26% in '23, but considering that the Federal Reserve is expected to enter a cycle of interest rate cuts in 2024, it may boost the level of net interest spreads.
Industrial Operation Division: Equipment utilization has rebounded and the growth rate is steady. (1) In 2023, the industrial operation segment generated revenue of 14.739 billion yuan, yoy +11.38%, of which Hongxin C&D achieved revenue of 9.611 billion yuan, yoy +22.00%; Hongxin Health achieved revenue of 4.238 billion yuan, yoy +15.53%. (2) In 2023, the utilization rates of the aerial work platform, the new support system, and the new membrane frame system were 80%, 70%, and 73% respectively, an increase of 2.7 pcts, 2.2 pcts, and 1.5 pcts compared to 2022. In terms of gross profit, the gross profit of the industrial operations segment was stable, at 31% in 2022 and 32% in 2023.
Profit forecasting and investment advice. The company's revenue in 2024 is estimated to be 39.569 billion yuan, up 4.24% year on year, net profit to mother of 6.333 billion yuan, up 2.26% year on year, EPS 1.47 yuan/share. Far East Hongxin's average PE value for the past 5 years is about 5-5.5x. Considering the company's performance growth trend, a reasonable value of 5x PE is given in 2024, then the reasonable value is 7.9 HKD/share, maintaining the “gain” rating.
Risk warning. Decrease in yield on interest-bearing assets, rise in non-performing assets, economic fluctuations and policy risks, etc.