Key points of investment
Our view: In the first half of 2020, the global economy, financial markets and business environment were generally affected by the pandemic. With diversified development strategies and effective cost management, the company's interim results showed great resilience, while expanding in due course to promote the development of various businesses such as financial products and customer loans. We maintained the company's “prudent increase” rating and raised the target price by 21.4% to HK$1.53. The company's target price increased 13.3% from the current price. In 2021-2023, the PB corresponding to Guotai Junan International's target price was 0.92, 0.86 and 0.86 times, respectively. Investors are advised to pay active attention.
Operating income and net profit attributable to shareholders reached new highs. The company's revenue in 2020 increased 14.8% year on year; Guimu's net profit rose sharply by 74.5% year on year. In 2020, the impairment of company provisions fell 60% year over year. Benefiting from a combination of factors such as impairment provisions and financing costs, the company's total cost in 2020 fell 6% year on year, and the cost to revenue ratio fell 13 percentage points to 63%. The company paid a total dividend of HK8.5 HK cents in 2020; the payout ratio was 50.3%.
The wealth management business bucked the trend, and the total amount of assets managed by clients increased dramatically. In 2020, the company's personal finance-wealth management revenue accounted for 30% of the Group's total revenue. By the end of 2020, the total amount of assets held by the company's clients reached HK$206.7 billion, a sharp increase of 35% over the previous year. The balance of loans and advances granted by the company to customers increased 33% year-on-year to HK$15.6 billion, the highest in the past three years due to new clients' financing allocation requirements.
The growth of institutional finance business has been steady, and the amount of corporate financing has increased dramatically. In 2020, the company's institutional financial revenue accounted for 57% of the Group's revenue. In 2020, the company helped corporate clients raise a total of nearly HK$464.3 billion in the bond market. In terms of the number of transactions issued, the company ranked second in Bloomberg's G3 currency corporate high-yield bond underwriting rankings in Asia (excluding Japan). In terms of equity capital markets, the company helped enterprises raise a total amount of HK$124.3 billion.
Investment management performance has been excellent, and asset management revenue has increased dramatically. In 2020, the company's revenue from asset management fees and performance fees increased substantially by nearly 3.2 times to HK$154 million. As of December 31, 2020, the company's asset management volume increased 12% year over year to approximately HK$9.3 billion.
Risk warning: 1) Wealth management business development falls short of expectations; 2) Investment banking business investment banking business growth falls short of expectations; 3) Market downturn affects investment income; 4) Company operating risks.