Incident: On June 3, Yuexiu Capital issued the “Notice Concerning the Purchase of Yuexiu Real Estate Shares and Related Transactions by Guangzhou Assets Holding Subsidiary”.

With a stake in Yuexiu Real Estate and capital operation in the next city, the company's industrial structure is expected to be optimized. On June 3, the company announced that the holding subsidiary Guangzhou Assets plans to use no more than 557 million yuan of its own capital to buy Yuexiu Real Estate shares in the secondary market through Hong Kong Stock Connect. The cumulative purchase of shares will not exceed 2% of Xiu Real Estate's total share capital; if subsequent transactions proceed smoothly, Yuexiu Capital will become the 5th largest shareholder of Yuexiu Real Estate. Previously, Yuexiu Capital used “non-performing asset management, financial leasing, investment management+strategic investment in CITIC Securities” as its core industrial structure. This investment will help further improve the company's diversified financial service layout and push the company to steadily advance into a financial investment holding group.

Yuexiu Real Estate's operating performance is good, but the investment income contribution is expected to be limited, focusing on business collaboration and upgrading.

Since Yuexiu Group is also a controlling shareholder of the company and Yuexiu Real Estate, and previously Yuexiu Group held 43.39% of Yuexiu Real Estate's shares through a subsidiary, this increase shows the majority shareholders' confidence in the development of Yuexiu Real Estate. Currently, Yuexiu Real Estate's business situation is good, with 23-year contract sales of 142.03 billion yuan/yoy +14%, leading the growth rate in the industry, maintaining the leading position in the Greater Bay Area market and Guangzhou's number one share. For Yuexiu Capital, based on Yuexiu Real Estate's net profit of 3.19 billion yuan in 2023, with reference to the company's strategic investment in CITIC Securities, the corresponding investment income of 2% equity under the equity method was 64 million yuan/2.7% of the company's net profit in 23 years, and the corresponding return on investment was 11.5%.

The company's “AMC+ Real Estate” business layout was further expanded to promote the transformation of AMC's business strategy. Previously, the company collaborated with Yuexiu Real Estate to explore asset restructuring and restructuring businesses. After taking the shares, it helped Guangzhou Assets and Yuexiu Real Estate to further explore real estate market opportunities and explore businesses such as poor real estate relief, restructuring and revitalization, and asset operations. Considering that against the backdrop of real estate fluctuations and the difficulty of disposing of non-performing assets in '23, Yuexiu Capital's AMC scale has shrunk. Throughout the year, the company acquired 13.01 billion yuan/yoy -79% of non-performing assets and disposed of 15.23 billion yuan/yoy -34%; this investment will help accelerate the transformation of Guangzhou's asset strategy and cultivate new momentum for AMC's business development.

Investment analysis opinion: Maintain a “recommended” rating. As the only A-share listing platform under Yuexiu Group, Yuexiu Capital has a clear “3+1” core industry structure and an accelerated new energy business layout, giving it a “recommended” rating. The estimated net profit of 24-26E Yuexiu Capital is 2.24 billion yuan, 2.35 billion yuan, 2.46 billion yuan, or -7%, +4%, and +5% year-on-year. The current closing price corresponds to 24-26E dynamic PB of 0.93x, 0.89x, 0.84x.

Risk warning: increasing downward pressure on the economy; subsidiary operations falling short of expectations; risk of policy changes.