Summary. As the strategic segment of Haitong (6837 HK), Haitong Xin provides customers with financial leasing, operating leasing, factoring, subcontracting, and consulting services. From 2016 to 2018, the company's operating income grew at a compound annual growth rate of 29.8%, reaching 5.332 billion yuan. We expect the company's operating revenue to further increase to 7.196 million RMB 8.728 billion in 201919. Leasing companies listed in Hong Kong are trading at an average price-to-book ratio of 1.0 times in 2019, according to Bloomberg. The company's current share price is equal to 0.7 times the 2019 forecast price-to-book ratio. Using the industry average price-to-book ratio, we have a target price of HK $1.94 per share, with a potential increase of 34.8%, covering for the first time and giving a buy rating.
Relying on the "one big and one small" customer strategy to achieve rapid development. The company has established a long-term and stable cooperative relationship with the government and customers of large and medium-sized enterprises, and makes every effort to develop potential small and micro enterprises and individual customers.
From 2016 to 2018, the income from the former grew at a compound annual rate of 12.8%, from 2.594 billion yuan to 3.3 billion yuan, while the income from the latter grew at a compound annual growth rate of 88.8%, from 570 million yuan to 2.032 billion yuan. Except for 2016, the average return on interest-bearing assets of small and micro enterprises and individual customers is higher than that of government and large and medium-sized enterprise customers.
Support business growth with relatively low financing costs. The company's main credit rating is AAA, and the company is able to finance at a relatively low cost to support business growth. In 2016-17-18, the company's weighted average interest rates were 4.4%, 5.0%, 5.0%, respectively. Superimposing high-yielding, growing small and micro enterprises and individual customer base, the company's net interest margin is expected to increase. We expect the company's net interest margin to increase to 2.01%, 2.02%, 2.02% and 2.02% in 2019.
The risk control measures are prudent and the bad outlook is stable. The company has formulated the principle of differentiated credit review for different industries and different customer groups. From 2016 to 2018, the rate of non-performing assets improved steadily, from 1.10% to 0.94%. We expect that the rate of non-performing assets will remain stable in 2019 by the end of this year.
First coverage, given a buy rating, with a target price of HK $1.94. Leasing companies listed in Hong Kong are trading at an average price-to-book ratio of 1.0 times in 2019, according to Bloomberg. The company's current share price is equal to 0.7 times the 2019 forecast price-to-book ratio. Using the industry average price-to-book ratio, we have a target price of HK $1.94 per share, with a potential increase of 34.8%, covering for the first time and giving a buy rating.