Wisdom Financial APP learned that GF Sec released a research report stating that it initiated coverage of China Cinda (01359) with a 'shareholding' rating. It expects the company's 25-year net profit from non-performing asset management business attributable to the mother to be 4.099 billion yuan, giving the non-performing asset management division a PE ratio of 11 times, corresponding to a total fair value of 45.087 billion yuan; the traditional financial business's net profit attributable to the mother is 3.521 billion yuan, giving the traditional finance division a PE ratio of 5 times, corresponding to a total fair value of 17.607 billion yuan. The total fair value is 62.694 billion yuan, corresponding to a reasonable value per share of 1.81 yuan/share (1 HKD = 0.91 RMB).

GF Securities' main points are as follows:

An industry leader focusing on non-performing asset disposal as the main operation with financial services as auxiliary.

The company was established in April 1999, and is one of the first four financial asset management companies approved by the State Council. As of the end of 2023, it mainly includes non-performing asset management business, accounting for 58.3% of revenue, 52.7% of pre-tax profit, and 57.3% of assets; financial services include banking business, securities business, and public offering management business.

Economic recovery allows the company to spread its wings after breaking free from limitations.

(1) From the perspective of non-performing asset supply: In recent years, banks have increased their self-handling capacity of non-performing assets, significantly reducing the scale of outsourced packages. However, the continuous deepening of the decline in bank interest margins has increased its operational difficulty. At the same time, non-performing loan balances have been growing year after year. Under the push of interest rate cuts and reserve requirement reductions, banks may increase their outsourcing packages in the future, and in the first half of 2024, some banks have shown marginal growth in the scale of outsourced packages compared to the same period last year. In addition, influenced by the policy promoting small and micro loans, the scale of personal loans and individual corporate loans from banks has increased. However, economic fluctuations have led to an increase in non-performing loans. In the first half of 2024, personal loan disbursements have significantly increased, and the disposal of non-performing personal loans is expected to become an incremental business for asset management companies (AMCs).

(2) Regarding disposal: In September 2024, the State Council Information Office emphasized local government debt, combined with a series of protective policies such as the tax incentives granted to AMCs in 2023, increasing the attention on AMCs and enhancing their disposal capabilities.

As of 24H1, the total amount of non-performing loans is 582.8 billion yuan, stabilizing year-on-year, slightly decreasing by 3%. The non-performing asset management business revenue is 12.8 billion yuan, with an annualized gross yield of 4.3%, basically flat year-on-year, but still far from the 2021 peak of 7.6%.

The financial services industry is also expected to see a window of performance improvement.

(1) The financial service business is mainly dominated by Nanjing Commercial Bank, with most of its deposits coming from Hong Kong. Due to the impact of the Hong Kong interest rate environment and its linkage with the United States, in the past, deposit rates have risen, but the expected rate cut by the Federal Reserve is likely to drive the bank's liabilities down while contributing to the overall company's profit flexibility. (2) China Cinda Securities and China Cinda Australia are set to benefit from the opportunities in the capital markets brought by counter-cyclical policies, with their financial conditions expected to improve.

Risk Warning: Risks include credit risk, liquidity risk, and the risk of the real estate industry's recovery falling short of expectations.