Introduction to this report:

Performance declined sharply due to a shift in the company's investment business. The acquisition of Shenzhen Jianyuan seized growth opportunities in the biomedical industry. The completion of new fund raising led to an increase in management fee revenue, and capital market improvements favored the company's exit from the project.

Key points of investment:

Maintaining the “increase in holdings” rating, maintaining the target price of 23.70 yuan, corresponding to 2024 32xp/E: the company's 2024Q3 adjusted revenue (including private equity investment income) /net profit of 0.707/0.245 billion yuan, -39%/-63% year-on-year. According to the three-quarter report, we adjusted the 2024-2026 EPS to 0.74/1.58/2.00 yuan (previously adjusted 0.74/1.57/1.99 yuan). Maintaining the “gain” rating, considering that the company is the leader in the industry, its competitive advantage is obvious. It is given 32 xP/E for 24 years, corresponding to a target price of 23.70 yuan.

The shift in investment income to negative was the main reason for the decline in the company's 2024Q3 performance: the 2024Q3 adjusted revenue fell 56%, of which investment income (including investment income and fair value change income) was -0.037 billion yuan, which was 0.493 billion yuan in the same period in 2023. Investment losses were mainly due to changes in the current fair value of the company's financial assets measured at fair value and the changes included in current profit and loss. Investment losses were the main reason for the decline in the company's profit. In the private equity business, 2024H1 management fee revenue was 0.22 billion yuan, up 81% year on year. It is expected that management fee revenue increased due to the successful fundraising of the company's Harmonious Green Industry Fund; 2024H1 building materials business revenue was 0.261 billion yuan, down 41% year on year, mainly due to the overall weakness of the cement and aggregate market in the region where the company's building materials business is located, and product sales prices have declined significantly compared to the same period in 2023.

The company's acquisition of Shenzhen Jianyuan seizes growth opportunities in the biomedical industry. The completion of the new fund raising has led to an increase in management fee revenue. Capital market improvements have helped the company to exit the project, and are optimistic about the company's performance growth. The company announced that 1.596 billion yuan acquired 92% of the shares of Shenzhen Jianyuan Pharmaceutical Technology Co., Ltd. (“Shenzhen Jianyuan”). Shenzhen Jianyuan is a domestic enterprise with an advantage in the scale of peptide APIs. The operating profit for 2023 and 2024H1 was 89.99 million/82.68 million yuan. The profit growth rate is fast, the business prospects are broad, and it has strong industry competitiveness. It is expected that Shenzhen Jianyuan will continue to increase the company's profit after the merger. The company's Harmonious Green Industry Fund completed fundraising in July 2024, with a total amount of 10.5 billion yuan. As the scale increases, it is expected to lead to a positive increase in management fee revenue. In terms of investment, it will focus on science and technology innovation enterprises with cutting-edge technology such as new industrialization and artificial intelligence to increase reserves for high-quality projects. Recent improvements in the capital market are beneficial to the listing and subsequent exit of the company's first phase fund projects, and accelerate the implementation of the company's follow-up investment income and performance rewards.

Catalyst: Shenzhen Jianyuan's performance exceeded expectations, and the company's performance rewards were confirmed at an accelerated pace.

Risk warning: The prosperity of the private equity investment industry has declined, and regulatory policies have changed.