Main points of investment

Participate in value creation in various forms, Huaxing business synergy is remarkable 1. China Renaissance Holdings Ltd. 's mission is to find the leading enterprise in the new economy and become a strategic partner with it. China Renaissance Holdings Ltd. is also deeply involved in value creation while creating value for the new economy, and the way of realization changes with the layout of the business: Huaxing mainly focuses on private equity FA business in the early days of its establishment in 2005. And thus cut into the IPO underwriting market, China Renaissance Holdings Ltd. formally raised new economy funds to carry out investment management business in 2013, set up Huaxing Securities to enter the investment banking business in mainland China in 2016, and began to build a wealth management team in 2018. At present, the diversification of China Renaissance Holdings Ltd. 's business is reflected in its performance. First of all, the business income of the investment management sector reached 1.374 billion yuan in 2020, accounting for 50.3% of the total income, up from 37.2% in 19 years, and 84.6% of operating profits. Secondly, as China Renaissance Holdings Ltd. invests himself or third-party funds as GP and LP, In 2020, Huaxing's net investment income increased by 259.5% to 1.142 billion yuan compared with the same period last year, accounting for 41.8% of total operating income, up from 19.6% in 19 years. 2. China Renaissance Holdings Ltd. 's business synergy in different sections is obvious: hundreds of employees of the investment bank line have access to most private equity projects in the market. It is precisely because of the understanding of the situation and progress of the projects in the whole market that they can transmit to the asset management business department which projects are suitable to enter the investment reserve pool, while the capital management department focuses on research and can provide reference for private equity FA in the choice of track and customer groups. To help investment banks fight for a role in the project, for clients of the asset management department, accepting Huaxing's investment will introduce not only investment institutions, but also capital experts. The initial clients of the wealth management business are defined as the new economic wealth group, which can be converted from the senior executives of investment bank clients. At the same time, wealth management provides cash management products to investment bank clients to enhance customer stickiness. In addition, wealth management customers are expected to be further transformed into LP, which will contribute to the successful fundraising of private equity products. Huaxing performed well in 2020., Group ROE increased to 18.8%. China Renaissance Holdings Ltd. 's operating income increased 68% to 2.73 billion yuan in 2020 compared with the same period last year, operating profit and net profit increased by 157% and 320% to 1.13 billion yuan and 1.04 billion yuan, the group's ROE increased significantly to 18.8%, and the dividend amount increased to 205 million yuan from 80 million yuan in 19 years. All businesses have excellent performance:

1. Investment banking business income and operating profit rose 44% and 259% year-on-year to 1 billion yuan and 290 million yuan, of which advisory services, stock underwriting and sales transaction income were 595 million yuan, 259 million yuan and 131 million yuan, respectively. Under the strategy of shifting the focus of private equity FA to divert IPO, Huaxing Hong Kong and US Chinese stocks IPO book management amount and ranking have been greatly improved. And play an important role in some influential projects in the market, such as underwriting KE Holdings Inc. 's largest single IPO order, and obtaining a single underwriting fee of more than US $10 million in JD Health and other projects. 2. Benefiting from the substantial increase in fair value, China Renaissance Holdings Ltd. 's capital management AUM increased by 23.2 billion yuan to 57.4 billion yuan at the end of 2020 compared with the same period last year. The investment income earned by his own capital was 930 million yuan, and at the same time, he earned 4. 5%.

200 million yuan management fee

3. Huaxing Securities, as the main body of China Renaissance Holdings Ltd. 's operation in mainland China, its operating profit turned negative to 74 million yuan in 2020, mainly due to continuous investment in investment banking and wealth management business. On March 29, 2021, the main underwriter of Huaxing Securities and Lin Weina officially landed on the gem. At present, Huaxing Securities still has 8 single-branch gem and gem IPO to submit for the record.

The profit reserve is abundant, and many pieces of income can be superimposed in the future.

1. China Renaissance Holdings Ltd. is about to launch the fourth phase of the New economy Fund from 2021 to 2022: benefiting from China Renaissance Holdings Ltd. 's good record of investment return, which is better than the fund-raising ability of the industry, we believe that Huaxing has the ability to complete the target of raising RMB 10 billion yuan and US $1 billion in four tranches of funds on schedule. In this way, the asset management scale of collecting management fees is expected to increase from 21.87 billion yuan at the end of 2020 to 36.8 billion to 41.8 billion yuan by the end of 2022, and the income from management fees is expected to double to 800 million yuan. 2. China Renaissance Holdings Ltd., as a GP, will withdraw excess income from the private equity funds managed by him, that is, after reaching the agreed rate of return (hurdle rate), the accumulated net excess income of the carried interest,2013 Huaxing private equity fund will exceed 1.6 billion yuan. Huaxing will gradually withdraw according to the judgment of the prospect of the project, and these benefits will be reflected in the profit statement in the next few years as a reservoir. We estimate that the profits released in 2021-2022 will be 100 million yuan and 250 million yuan respectively. 3. In 2020, Huaxing invested 1.597 billion yuan in its own fund and 771 million yuan in third-party funds, while the IRR of the former 43% was much higher than 17% of the latter. Huaxing will allocate more funds to its own PE in the future. In addition, Huaxing Securities obtained the proprietary business license of the China Securities Regulatory Commission in October 2020, so its investment will no longer be limited to past cash and interest rate debt, but can be invested in assets with higher yields. such as providing structured financing for investment banks' clients in the new economy, Science and Technology Innovation Board following investment, and credit strategy, etc.

Valuation reference: our valuation reference for China Renaissance Holdings Ltd. is KKR and Blackstone Group Inc (Blackstone), both of which are asset management giants. At present, 85% of China Renaissance Holdings Ltd. 's operating profit comes from private equity fund management business, so the source of profit is more consistent. The average PE of KKR and Blackstone Group Inc over the past 5 years (the net profit of KKR and Blackstone Group Inc here adopts Non GAAP caliber, that is, deducting unrealized carriedinterest, represents the actual distributable profit) is 12.34 times and 15.03 times, and shows a state of improvement, we think that China Renaissance Holdings Ltd. 's valuation can refer to the price-to-earnings ratio of KKR and Blackstone Group Inc.

Investment advice: unlike other securities firms, China Renaissance Holdings Ltd. started as a private equity financial advisor (FA) business and gradually cut into IPO and private equity management business. benefiting from his comprehensive understanding of market projects, the synergy of investment banking, asset management and wealth business, the company fully enjoyed the richest stage of the value growth of China's rapid development of the new economy. We forecast its operating income of 3.19 billion yuan in 2021-2023. 3.81 billion yuan and 4.83 billion yuan, respectively, the year-on-year increase in net profit of 20.2% and 34.7% to 1.25 billion yuan, 1.52 billion yuan and 2.05 billion yuan respectively. The current stock price corresponds to 10.6 times of PE in 2021, covering for the first time and giving a buy rating.

Risk tips: market liquidity has tightened substantially, it is difficult to raise new funds, the valuation of the new economy has fallen sharply, and the business of Huaxing Securities in mainland China is not as expected. The public information used in the research report may lag behind or not be updated in a timely manner.