The company's recent situation

On April 16, we went to China Cinda to conduct research. The company's business development is steady, and financing has not been affected by the Huarong incident. We expect that in 2021, Cinda will continue to pursue high-quality development and maintain basic stability in scale and profit levels.

reviews

In 2020, Cinda's packaging market share was about 30%, and the package price stabilized at slightly more than 30% off. In 2020, the non-performing public approval market was 430 billion yuan, with a turnover of 380 billion yuan, an increase of 10% over the previous year, accounting for only 13% of the banking sector's bad disposal scale of 3 trillion yuan. In addition to public approval, common bad disposal methods include write-off, settlement, debt-for-equity swaps, etc. Regarding the reason for the decline in IRR in recent years, the company said that on the one hand, it has been affected by the general economic cycle environment, and on the other hand, it has accelerated the disposal of long-term assets in stock. The IRR level has been lowered after the annualization of earnings. Currently, the company's non-performing assets within three years account for more than 60%.

Actively participate in large-scale risk mitigation projects. Cinda actively participated in large-scale enterprise restructuring and small to medium bank risk mitigation projects by acquiring non-performing assets, assisting in designing restructuring plans, and acting as a restructuring consultant to provide support and services.

Pursue prudent risk management and high-quality development. In 2020, the company adopted prudent asset valuation methods, maintained prudent provisions, and strived to achieve high-quality development. In terms of acquiring and restructuring businesses, considering that Cinda's customer qualifications are lower than those of banks, and that most of its business is non-standard projects, risk control measures and collateral requirements will be higher. In terms of business processes, before the project team reports the project to the headquarters, they all need to be reviewed and approved by the risk control department.

Furthermore, the company said that in the past two years of supervision, more attention has been paid to the corporate governance and related transactions of financial institutions, and that several inspections have given Cinda a lot of approval. We continue to monitor Cinda's asset quality and provision calculation.

The company said the Huarong incident had no impact on Cinda's claims and equity financing. The company said that the planned overseas financing project was completed at the beginning of this year, and there are no subsequent financing plans, so it is not affected by fluctuations in the bond market. The overseas bonds already issued have not declined rapidly, and the ratings are stable; the credit lines granted by domestic banks have not been affected. By the end of 2020, Cinda's core Tier 1 capital adequacy ratio was 10.7% and capital adequacy ratio was 17.5%, both higher than regulatory requirements. The company stated that in addition to additional external capital, it would maintain a relatively stable capital adequacy ratio through asset restructuring.

There are currently no plans to sell more subsidiaries in the financial services sector. In terms of subsidiary development strategy, Cinda's current main work is to promote the listing of Cinda Securities and promote the market-based reform of Jingu Trust. After selling shares in Cinda Financial Insurance and Happy Life Insurance in recent years, the company has no further plans to divest subsidiaries in the financial services sector.

Valuation recommendations

Keep valuations and profit forecasts unchanged. The current stock price corresponds to 0.3 times/0.3 times the net market ratio for 2021/2022. We expect that high-quality development will eventually lead to a return to profitability, maintain an outperforming industry rating and target price of HK$2.22, corresponding to 0.5 times the 2021 net market rate and 0.4 times the 2022 net market ratio, with 38.8% upside from the current stock price.

risks

The company's asset quality performance fell short of expectations.