Ping An's point of view:
Yuandong Hongxin built two major business segments based on leasing and leasing. In 2023, the financial division and industrial division contributed 61% and 39% of revenue respectively. Among them, the financial division mainly focused on financial leasing, which contributed 53%; the industrial division mainly focused on equipment operation (mainly equipment operation and leasing) and hospital operations, with revenue contributions of 25% and 11% respectively. We believe that Yuandong Hongxin's core strengths are mainly its leading position in the industry, steady performance, and long-term stable and rich shareholder returns.
Financial leasing and equipment operations are leading, and the performance has steadily spanned the cycle. The growth rate of the leasing business has slowed in the past two years, and the industry's operating revenue has grown rapidly, ensuring the company's steady performance. 1) Main leasing business:
High quality and stability, and the leading advantage of stricter supervision is remarkable. Yuandong Hongxin is a leading independent financial leasing company in China. It has long been deeply involved in nine major industries, including urban public use and healthcare. The strategic focus is shifting towards regions with safer and higher returns in East China and Huazhong, with complete wind control systems, stable, moderate and improved asset quality, and strong interest spread management capabilities. It is expected to maintain its leading position in the industry in the context of stricter regulation of the leasing industry. 2) Industrial operation: The market share of equipment operation is leading, and IPOs store energy for expansion. The subsidiary Hongxin C&D ranked first in the domestic industry in terms of segmented product holdings and service outlets by the end of '21. It achieved a Hong Kong stock IPO in 2023, raised capital and will continue to expand its equipment volume and service network, and the number of customers has maintained rapid growth. Hospital operations have accumulated deep. The asset layout has been continuously optimized and restructured since 2020, and operations have gradually returned to normal in 2023; it is expected that the industrial division will maintain a steady growth rate.
Multiple measures have been taken to enhance shareholder returns, and the characteristics of high dividends are obvious. Since 2014, Yuandong Hongxin's ROE has remained around 14%, and the dividend rate has basically remained around 30%. Shareholder returns were further enhanced through share repurchases and in-kind distribution in 2023. After considering in-kind distribution of special dividends, the dividend payout ratio reached 42%. The valuation is also more cost-effective than its peers, with a dividend rate of over 8%, leading among comparable banks and leasing companies.
Investment advice: The net profit for 24-26 is expected to be 65/71/76 billion yuan, a year-on-year growth rate of 5%/8%/7%.
Referring to comparable companies, give the company PB (2024E) 0.46x, with a target price of HK$6.43. The company's financial leasing business is steady, industrial operations are growing rapidly, and the dividend ratio is leading. For the first time, coverage was given a “recommended” rating.
Risk warning: Financial supervision policies have been tightened beyond expectations; macroeconomic fluctuations affect downstream demand; yield on interest-bearing assets has declined beyond expectations or financing costs have risen above expectations; asset quality has fluctuated beyond expectations.