Lianyirong 1H23's performance fell short of our previous expectations, was in line with the profit warning company's 1H23 revenue ratio to 390 million yuan, net loss of 170 million yuan (vs. 1H22 net profit of 43 million yuan), adjusted net loss of 86.47 million yuan (vs. 1H22 adjusted net profit of 150 million yuan), lower than our previous expectations and in line with the company's profit warning. It was mainly due to pressure on asset securitization business volume growth, pricing strategy adjustments, high sales and marketing costs in the early stages of R&D business development, and cost increase rates To.
Development trends
The volume of asset securitization business has further shrunk, and the contribution of direct financing business has mainly increased. The company's total transaction volume of 1H23 was +22.5% year-on-year to 141.96 billion yuan (infrastructure and construction/real estate/trade and retail/other industries respectively accounted for 29%/15%/11%/10%): 1) Asset securitization (AMS&ABS) 1H23 transaction volume was -10.2% to 46.08 billion yuan, mainly due to a year-on-year contraction in the real estate supply chain ABS market circulation volume; 2) Direct financing (multi-level circulation cloud & e-chain cloud) 1H23 transaction volume was +51% to 8997 billion yuan, mainly due to multiple circulation levels clouds Rapid growth. As of 1H23, the company's multi-level circulation cloud platform has covered underlying asset categories such as accounts receivables/prepayments/inventory/warehouse receipts/orders, etc., and also launched the “Group Smart Industrial Finance Treasury Platform” innovative solution. We believe that the increasingly perfect underlying asset class superposition and new business layout is expected to lay the foundation for its future growth; 3) Cross-border Cloud 1H23's transaction volume is +23% over the same period to 5.73 billion yuan. Thanks to the gradual improvement of the cross-border supply chain solution ecosystem, some customers have gradually increased in volume.
Product structure and pricing adjustments have led to a decrease in gross margin, and investment in superimposed technology has greatly dragged down profitability. The company's 1H23 revenue was -23.4% to 390 million yuan, gross profit was -44.0% to 240 million yuan, and gross margin was -22.3ppt to 60.8% year-on-year. This was mainly due to the company's adjustment of pricing strategies to increase market share, product structure changes, and higher sales-related operating costs in the early stages of innovative business development due to increased market competition. As the scale of the company's non-authorised supply chain financial services expands and the scale effects of innovative businesses gradually become apparent, we believe there is still room for improvement in its service rates and gross margin in the future. Furthermore, with rates declining and revenue shrinking, the company's 1H23 total expenses (R&D expenses/sales and marketing expenses/management expenses) were +2% compared to the same period, and the cost control effect was still not fully apparent, which gradually dragged down the company's profitability. The company's 1H23 net loss was 170 million yuan, and the adjusted net loss was 86.47 million yuan. Looking ahead, as the company continues to reduce costs and increase efficiency and gradually improve service rates, we think its profitability may recover in the second half of the year.
Profit forecasting and valuation
Due to pressure on the company's asset securitization business, pricing strategy adjustments, and high investment in innovative business, the 23e non-general standard net profit was lowered from profit of 280 million yuan to loss of 85.17 million yuan, and the net profit forecast of the 24e non-general standard was lowered by 74% to 110 million yuan. The company is currently trading at 33.2x 24e P/E. At the same time, considering that the company's fundamentals are expected to gradually recover, the target price was lowered by 43% to HK$2.44 (based on 42.2x 24EP/e), maintaining an outperforming industry rating, and there is room for 30% increase from the current stock price.
risks
The recovery in customer financing demand fell short of expectations; the new business development process fell short of expectations.