Incident: Yuandong Hongxin released its 2023 annual report. During the reporting period, it achieved revenue of 37.960 billion yuan, +3.76% year over year; realized net profit of 6.193 billion yuan, +1.04% year over year. Excluding taxes and surcharges, the revenue of the Finance and Advisory segment was $23.363 billion, -0.58% year on year, and revenue from industrial operations was $14.739 billion, +11.38% year over year.
The financial business remained stable, and the expansion of new types of business hedged the decline in consulting revenue. Due to the basic stability of the target customer base and the decline in consulting demand, the company's consulting business revenue was -50.82%; at the same time, the company actively expanded new businesses such as inclusive finance, commercial factoring, and asset business, contributing 2,087 billion yuan in interest income, or +12.09% over the same period last year, which hedged the decline in consulting revenue. In terms of scale, the average balance of the company's interest-bearing assets was RMB 271.019 billion, +0.67% YoY, and the average balance of interest-bearing liabilities was RMB 234.090 billion, +5.60% YoY. In terms of profit, the company continued to maintain strong pricing capabilities, with a high yield on new business, with a yield of +24BP to 8.24% year over year, supporting interest income +3.64% year over year to 22.467 billion yuan; however, in an overseas high interest rate environment, the interest-bearing debt cost ratio was +20BP to 4.26% year over year, driving up interest expenses by +10.82% to 99.82 billion yuan. The company's net interest spread during the reporting period was -9BP to 4.58% year-on-year, and net interest income was -1.46% year-on-year to $12.485 billion. Looking ahead, if the overseas interest rate cut cycle starts, it will reduce debt-side costs and effectively ease the pressure on interest spreads.
The industrial operation business is developing rapidly, and the share of operating contributions continues to increase. Hongxin C&D increased the coverage of its operating network and enhanced its professional management capabilities. By the end of 23, the number of company outlets had grown to 490, covering nearly 200 cities, and the management scale of its aerial work platforms reached 177,600 units, maintaining the leading level of the industry; during the reporting period, Hongxin C&D achieved revenue/net profit of 96.11/1,043 billion yuan, +22.00%/+10.65% over the same period last year. Hongxin Health seized the opportunity for medical service recovery, accelerated strategic upgrading and transformation, and continued to improve overall management efficiency; during the reporting period, Hongxin Health achieved revenue/net profit of 42.38/172 million yuan, +15.53%/252.75% over the same period last year. The company's overall industrial operation business developed rapidly, with revenue +11.38% year-on-year, accounting for +2.66pct to 38.68% of revenue before tax and additional charges, and its contribution to performance continued to increase.
The quality of assets is stable, moderate and improving, and provisions offset profits. The quality of the company's assets was further optimized. As of the end of the reporting period, the company's attention rate was -1.03 pct to 5.97% year on year, and the non-performing rate was -1 BP to 1.04% year on year, continuing to remain low. The company's provision coverage rate was -12.39 pct year over year to 227.59%. The total amount of provision accrued during the reporting period was 6.355 billion yuan, -6.47% compared with the same period in '22, which effectively contributed to net profit.
Shareholder returns have always been emphasized, and the logic of high dividends has been strengthened. In terms of dividends, in December '23, the company announced the issuance of a special dividend. For every 27 shares of Yuandong Hongxin shares, 1 Hongxin C&D share will be issued; at the same time, the company plans to pay a cash dividend of HK$0.50 per share, keeping the dividend rate above 30%. The dividend rate corresponding to the closing price of HK$6.07 is 8.24%. In terms of equity incentives, the board of directors approved the equity incentive plan and proposed to grant no more than 260 million restricted shares, demonstrating confidence in future development.
Investment advice: The company's financial business remains stable, and the industrial operation business is expected to continue to provide a driving force for performance; the company always adheres to an active dividend distribution policy and further strengthens the high dividend logic. The company's 2024-2026 revenue is expected to be +8.63%, +6.61%, +5.43%, net profit to mother +9.53%, +7.55%, +4.56%, EPS is 1.57, 1.69, 1.77 yuan, and PE corresponding to the closing price on March 15 is 3.55, 3.30, and 3.16 times. Maintain a “buy” rating.
Risk warning: Interest rates fluctuate greatly, business development falls short of expectations, and asset quality deteriorates drastically.