Incident: The company disclosed its 2023 annual report and achieved annual revenue of 436 billion yuan (YoY -10%) and net profit to mother of 3.9 billion yuan (same period last year: 1.2 billion yuan). The main causes of net profit loss: 1) Net profit attributable to mother in the industrial operation sector was 1.7 billion yuan, of which Lenovo Group contributed 2.2 billion yuan of net profit year over year, mainly affected by weak demand in the PC market; Lianhong Group contributed 300 million yuan in net profit year over year, mainly affected by falling EVA market prices. 2) Net profit from the industrial incubation and investment sector was 3.2 billion yuan year-on-year, mainly affected by capital market fluctuations, the tightening pace of IPOs, and the slowing progress of holdings reduction.
Industrial operation: The industry boom limited performance, and banking business bucked the trend. In 2023, the company's industrial operations segment achieved revenue of 431.6 billion yuan (YoY -10%) and net profit to mother of 3.1 billion yuan (YoY -36%). Judging from the performance of the four core companies in this sector: 1) Lenovo Group contributed -53% to net profit to the company over the year, up to 2 billion yuan. The industry cycle and short-term market pressure dragged down IDG's performance. 2) Lianhong Group contributed -55% to 200 million yuan in net profit to the company throughout the year, mainly due to falling EVA prices and lower gross margin. 3) The Jiawo Group contributed 500 million yuan to the company's net profit throughout the year (same period last year: -800 million yuan). Its Jiawo Foods was affected by factors such as geographical conflicts and rising US dollar interest rates, putting pressure on the spending side. 4) The International Bank of Luxembourg contributed +43% to the company's net profit to the mother during the year, mainly due to the tightening of monetary policies by many European central banks.
Industry incubation and investment: Market fluctuations put pressure on profits, focusing on the layout of the AI industry chain. In 2023, the company's industrial incubation and investment sector achieved revenue of 4.4 billion yuan (YoY +8%) and net profit of 5.6 billion yuan (same period last year: -2.3 billion yuan), mainly affected by various factors such as capital market fluctuations, the pace of IPOs, and the progress of financial investment holdings reduction. The company adheres to “scientific and technological innovation” as its strategic leadership. Up to now, the company has laid out more than 200 AI industry chain enterprises.
Cash flows have been steady, and the share of debt has continued to decline. The company returned about 8.05 billion yuan in cash in 2023 through dividends, investment withdrawal, etc.; as of the end of 2023, the total debt/total capital ratio was -1 pct to 55% year on year, and has been declining for 4 consecutive years.
Investment advice: Maintain a Buy-A investment rating. The company's performance in 2023 is under pressure, mainly due to changes in the industry cycle and capital market fluctuations. It is expected to improve marginally in the future as the external environment improves. We expect the company's 2024-2026 EPS to be $0.91, $1.03, and $1.26, respectively. The corresponding 6-month target price is HK$6.36 (converted exchange rate).
Risk warning: capital market fluctuations, macroeconomic changes, listing progress of investee companies falling short of expectations, etc.