The main work of the company in 2010 is focused on: (1) resolving historical risks and improving the level of risk control; and (2) accumulating customer resources and tamping the foundation of development. On this basis, we will focus on new business development in 2011.
The prudent monetary policy provides a rare opportunity for the development of corporate financial business. The benefits of corporate austerity are mainly reflected in the double increase in business volume and interest rates.
Pawnbroking and entrusted loans are still dominant in the financial business. In order to improve the efficiency of the use of funds, the company has begun to shift the focus of development from heavy assets and low-leverage pawns and entrusted loans to light assets and high-leverage guarantees and leases. According to the maximum amount of guarantee up to 10 times the capital, the potential incremental guarantee is about 1.7 billion yuan and the incremental income is about 50 million yuan, which can promote the growth of financial net income by nearly 70%.
In the absence of a financial leasing licence, leasing business is a strategic business that needs to be nurtured over a longer period of time.
Benefiting from the double increase in the price and volume of financial businesses such as entrusted loans, the company's performance in 2011 will grow rapidly, and the degree of growth will be more sensitive to loan interest rates; longer-term growth depends on two major factors: the pace of corporate capital expansion and the optimization and adjustment of the structure of quasi-financial business (that is, the degree of leverage).
Under the benchmark assumption that the entrusted loan will grow by 30% this year and the monthly interest rate will be 1.5% and 1.7% respectively, we expect the company's EPS from 2011 to 2012 to be 0.36 yuan and 0.49 yuan respectively, with a corresponding growth rate of 71% and 38%. It should be pointed out that the 2011 profit forecast does not include the recent land acquisition compensation income of the company.
The dynamic PE of the company this year and next year is 28 times and 20 times, which is significantly higher than the overall valuation of A-share financial companies, which also reflects the company's rapid growth expectations and the scarcity of the company in the A-share market. We still maintain a cautious overweight rating.
The catalyst is higher capital and higher leverage; the risk is that the pace of growth may be constrained by a lack of capital and a rise in bad debt rates brought about by the economic downturn.
