Incident: The company disclosed its 2023 annual report, achieving full year operating income of 1.23 billion yuan (YoY +15.7%), net profit to mother of 800 million yuan (YoY +25.7%), basic earnings per share of 0.65 yuan (YoY +25.7%), and a weighted average ROE of 16.57% (YoY+2.35pct). In addition, the company disclosed its 2024 quarterly report. Q1 achieved operating income of 340 million yuan (YoY +13.2%), net profit to mother of 230 million yuan (YoY +21.5%), basic earnings per share of 0.17 yuan (YoY +21.5%), and a weighted average ROE of 4.18% (YoY+0.52pct).
Asset management in difficult institutional situations: Contributing to a stable source of revenue. In 2023, the company achieved revenue of 1.11 billion yuan (YoY +8.3%) from disposal of non-performing assets, accounting for 90.4% of revenue. While contributing to the main source of revenue, the company maintained steady growth. Judging from the major business areas the company focuses on:
1) Energy sector: By the end of 2023, the stock balance of the company's energy distressed asset projects was 4.77 billion yuan. The project is running well. It is expected that it will fully rely on the group's energy industry resource endowments to promote project restructuring and revitalization, and contribute to stable restructuring benefits.
2) Listed company sector: By the end of 2023, the balance of distressed asset projects of listed companies was 627 million yuan, and several reserve projects were underway. In 2023, the company has successfully assisted the listed company Helen Zhe in mitigating the risk of delisting. We are optimistic that the company will further accumulate business experience and innovate business models to help listed companies relieve and improve quality.
3) Special opportunity field: As of the end of 2023, the company's special opportunity project stock balance was 1,866 billion yuan. At present, the company has established business contacts and cooperative relationships with many financial institutions, local AMC and unlicensed asset management companies, and has carried out comprehensive in-depth cooperation in the selection, packaging, acquisition and disposal of non-performing asset projects.
4) Commercial real estate sector: As of the end of 2023, the company had a stock balance of 1,096 billion yuan in difficult commercial real estate asset projects. The project operation was good, and the assets were distributed in Beijing, Chengdu and other places. Considering that the company's projects in this field are mainly located in economically developed regions, it is expected that this type of business will continue to contribute more stable rent returns to the company, while gradually achieving asset appreciation benefits as the economy warms up.
Personal distress asset management: The disposal system is getting better. In 2023, the company achieved revenue from fintech services of 60 million yuan (YoY +71.5%), accounting for 4.9% of revenue. By the end of 2023, the company had acquired a total of 29 non-performing personal loan projects using its own funds or partnerships, with a debt principal of about 10.6 billion yuan, debt principal and interest of about 18.3 billion yuan, and consideration of 880 million yuan, involving more than 620,000 debtors. It ranked at the leading level of market share among the five major AMCs and 60 local AMCs in the country. Following the capital increase in August 2022, Junfeng Technology began using “big data+AI technology” to carry out the personal loan bad asset management business, in October 2023, the company's subsidiaries obtained a total 51% stake in Guangzhou Huilong, a 15-year old electronic driving company, through acquisitions and capital increases; in addition, in 2023, the company established a new Tibet Guiqing, which focuses on centralized judicial litigation and judicial mediation. Considering that the company laid out bad personal loans business earlier, disposal methods are getting better, and the “AI+ administration of justice, telephone, and mediation” full chain disposal capacity continues to be consolidated. It is expected that disposal capacity and disposal efficiency will continue to be improved, opening up room for growth in business scale and performance contribution.
Investment advice: Give a “buy-A” investment rating. As the only A-share licensed enterprise specializing in AMC business, the company relies on shareholders' industrial background advantages and own resource endowments to deeply cultivate the difficult asset management market and build three major business lines of ToB side institutional distress asset management+ToC side personal distress asset management+focus on high-quality asset management in line with the country's industrial development direction. In January 2024, the company signed an equity transfer agreement with the clearing company Sichuan Haocheng to acquire 51% of its shares, which will further enhance the company's advantage in the field of corporate restructuring/restructuring.
1) Profit side: We are optimistic that the company holds a scarce AMC license for A-shares, and the scale of difficult asset management will continue to increase, driving steady growth in performance; actively laying out poor personal loan businesses and selecting investment projects such as energy storage and new energy sources, which have become a new driving force for performance growth.
We expect the company's non-performing asset disposal revenue in 2024-2026 to +15%, +18%, fintech service revenue +44%, +78%, and other revenue +25%, +19%, and +23%, respectively; operating income will be 1.04 billion yuan, 17.01 billion yuan, and 210 billion yuan, respectively, +17%, +19%, and +23%; net profit to mother will be 1.10 billion yuan, 1.16 billion yuan, 1.43 billion yuan, respectively, +13%, +17%, +23 billion yuan %; EPS was 0.74 yuan, 0.86 yuan, and 1.06 yuan respectively.
2) Valuation aspects: We selected AMC's Yuexiu Capital (000987.SZ), one of its three main businesses, and China Cinda (1359.HK) and CITIC Financial Assets (2799.HK), which are listed on Hong Kong stocks among the five major AMCs, as comparable companies. The average 2024 P/E was 10.4x (using Wind's consistent expectations, calculated based on the 2024/4/26 closing price). Considering the scarcity of the company's licenses, the steady expansion of its difficult institutional asset management business, and the potential growth space for poor personal loans, we believe that the company should enjoy a certain valuation premium, giving the company 14.5 x 2024 P/E, corresponding to a target price of 10.71 yuan for 6 months.
Risk warning: Stricter regulatory policies, increased industry competition, poor personal loan business development falls short of expectations, etc.