Incident Overview

On August 27, 2024, Huajin Capital disclosed the interim report. In the first half of 2024, the company achieved operating income of 0.196 billion yuan and net profit of 30 million yuan to mother, an increase of 11.40%/35.18%, respectively. As of the end of June 2024, listed companies had total assets of 2,329 billion yuan and net assets of 1.359 billion yuan. The weighted average ROE (non-annualized) was 2.20% and ROIC (non-annualized) was 2.19%, up 0.50/0.43 percentage points from the same period last year, respectively.

Key points:

Wenyuan Zhixing's IPO in the US is imminent, and the venture capital fund behind it is discerning

On July 26, 2024, US Eastern Time, the autonomous driving company WeRide (WeRide) submitted a prospectus to the US Securities and Exchange Commission (SEC) and plans to list on the NASDAQ under the stock code “WRD”. According to the public offering plan updated on August 20, Wenyuan Zhixing will issue 6.452 million ADs shares in this IPO, which is expected to raise about 0.11 billion US dollars (based on the median issue price range); at the same time, it plans to conduct a private placement of 0.3205 billion US dollars, raising a total of about 0.43 billion US dollars. Bosch indicated its intention to subscribe for ADs of no more than 0.1 billion dollars, accounting for about 91.2% of the number of IPOs.

It is worth noting that on the morning of August 22, 2024, according to IFR, a media owned by Reuters, Wenyuan Zhixing postponed the Nasdaq IPO without a new schedule.

Huajin Capital: A rapidly growing new venture capital star

According to Tianyan Chawen Yuanzhixing's financing information, Huajin Capital participated in Wenyuan Zhixing's B+ round of financing in January 2021. Huajin Capital has been selected as “China's Top 50 Private Equity Investment Institutions of the Year” and “China's Top 50 State-owned Investment Institutions” for many years in a row; in 2023, it ranked 15th in the “Top 100 Chinese Private Equity Investment Institutions of the Year”, setting a record for the highest national ranking of local equity investment institutions in Zhuhai. The company is active in investing in industries such as autonomous driving and artificial intelligence, new energy materials, semiconductors, and healthcare, and has participated in many unicorn companies such as Yubi, Kuwa Robotics (and introduced the project to Hengqin New Area, Zhuhai).

After many transformations, a new pattern of “venture capital+industrial+platform service” was formed

Huajin Capital was founded in 1992 and listed on the main board of the Shenzhen Stock Exchange in 1994. It is the third listed company in Zhuhai. Strategic transformation was officially launched in 2015. While consolidating traditional businesses such as electronic equipment manufacturing, electronic component production, and sewage treatment, professional subsidiaries such as Huajin Innovation Investment, Huajin Asset Management, and Huaying Investment were established to carry out equity investments. The company adheres to the “investment promotion through research” strategy, builds an expert investment team, and relies on Huafa Group's diversified industrial resources to cooperate with well-known venture capital institutions and industrial capital such as IDG Capital, Oriental Fuhai, and Fangzheng Technology.

In the first half of 2024, listed companies' revenue and net profit increased by 11% and 35%, respectively. In the first quarter and second quarter of 2024, the company's revenue was 9812/ 98.36 million yuan, +18%/+5.6% year over month, -21%/+0.25% month on month; net profit to mother +10864/ -78.66 million yuan, +641%/-1147% year over year, +274%/-172% month on month; net income from fair value changes was +0.132/-0.107 billion yuan, mainly from the company's investment, the preferred choice for 2023-12-29 Hong Kong Stock Exchange Fluctuations in market capitalization after listing — the total market value of Preferred Choice (9880.HK) at the end of 2023Q4, the end of 2024Q1, and the end of 2024Q2 was 34.4 billion yuan, 85.8 billion yuan, and 58.4 billion yuan respectively.

In terms of revenue contribution, the investment and management/electronic device manufacturing and sales/public facility services/science park business achieved revenue of 8432/ 6707/ 30.66/9.85 million yuan in the first half of 2024, contributing 43%/34%/16%/5% of total revenue. Revenue from various businesses changed +12%/+40%/-31%/+80% over the same period in 2023.

Relying on state-owned shareholders to embrace the Guangdong-Hong Kong-Macao Greater Bay Area innovation hotspot

According to Huafa Group's official website and foreign investment information from Tianyancha Zhuhai Huafa Investment Holding Group, Huajin Capital is the only listed core holding platform under Huafa Group's financial industry investment division. Huafa Group's financial assets also include Huajin Securities (the Group holds 79% of the shares) and Huajin Futures (the Group holds 99% of the shares). The Zhuhai State-owned Assets Administration Commission is the actual controller of Huajin Capital.

As the only city connected by land to Hong Kong and Macau, China, Zhuhai has an obvious location advantage and will play a more important role in deepening cooperation between Guangdong, Hong Kong and Macao. Huajin Capital can fully benefit from the industrial cluster effect brought about by the construction of the Greater Bay Area, explore high-quality industrial projects, and expand equity investment business.

In 2024, new loans for short-term and medium- to long-term residents will continue to decline, demand for enterprises to expand reproduction/refinancing is not strong, and local state-owned venture capital is expected to be one of the breaking points due to the current situation of internal consumption circulation and insufficient social capital investment in new quality productivity.

Investment advice

Huajin Capital relies on state-owned shareholders and is at the cutting edge of innovation in the Guangdong-Hong Kong-Macao Greater Bay Area. We believe it is expected to benefit from the benefits of the Greater Bay Area industrial cluster and relevant policy support for investing in forward-looking strategic emerging industries. We expect the company's 2024-2026 revenue to be 439.35/ 481.96/ 534.62 million yuan, respectively, 9.57%/9.70%/10.93%, respectively; net profit to mother will be 79.75/85.28/ 88.03 million yuan, respectively, 7.76%/6.93%/3.23%, EPS 0.23/ 0.25/0.26 yuan, respectively. The closing price on August 30, 2024 will be 10.87 yuan, corresponding to 2024-2026 Annual PE was 47.0/ 44.9/ 42.6 times, respectively, and the first coverage gave a “gain” rating.

Risk warning

Macroeconomic fluctuations have an uncertain impact on company profits; the impact of the IPO process on the exit cycle of venture capital projects. Wenyuan Zhixing's IPO has not yet been completed, and there is uncertainty. State-owned enterprise reforms fell short of expectations; increased competition in the industry led to a risk that the company's profit growth would fall short of expectations.