Zhongguancun Technology Leasing disclosed 2022 results, in line with profit expectations. The company achieved total revenue of 743 million yuan in 2022, an increase of 13% over the previous year, of which interest income was 613 million yuan, accounting for 83% of total revenue; net profit of the mother was 226 million yuan, an increase of 15% over the previous year; total assets of 10.91 billion yuan and net assets of 2.22 billion yuan at the end of 2022; and ROE at the end of the period reached 10.6%/yoy+0.7pct.

Regional expansion is gradually being implemented, and manpower investment continues to be increased. Through the “city partner” model, the company deeply covered science and innovation enterprises in the country's core economic zone and expanded and improved the number of customers. In 2022, the company successfully set up 3 regional shareholding companies in Shenzhen, Hangzhou and Suzhou, and the regional participating companies invested 750 million yuan in financial leasing business throughout the year. At the end of the year, the company's operating expenses were yoy +16.3%, of which employee costs were 88 million/yoy +21.7%, accounting for 58.2% /yoy+2.6pct of the total operating cost.

The quality of assets is stable, and the cost of interest expenses on loans decreased year-on-year. Normal assets accounted for 94.6% of corporate loans and receivables at the end of the year; the non-performing asset ratio was 1.6% /yoy+0.1pct, and the year-end provision coverage rate continued to increase to 173.7% /yoy-2.2 pct. The average return on corporate interest-bearing assets in 2022 was 6.5% /yoy-0.2pct; the cost ratio of interest expenses on loans fell to 3.9% from 4.1% in 2021. The net interest spread and net interest spread were 2.6% /same year over year and 3.7% /yoy-0.1pct, respectively.

Financial leasing investment reached a record high, and the number of intellectual property financing businesses and the scale of investment increased year over year. In 2022, the company added 7.42 billion yuan/YOY +20.3% to a new high. Among them, the intellectual property financing business invested 140 new issues/yoy +383%, and the investment scale was 1,063 million/yoy +392%, accounting for 14.3% of total financing investment, and intellectual property leasing revenue from interest income increased 27 times over the same period last year. The scale of leasing assets in Zhongguancun continued to grow rapidly. Net corporate loans and receivables at the end of the year were 10.104 billion/yoy +16%; interest-bearing assets were 9.41 billion yuan/yoy +15.6%, mainly driven by Daizhi Manufacturing business (interest-bearing assets YOY +48.9%).

Lease and investment linkage continues to gain strength, and the share option business is beginning to take shape. In 2022, the company completed 6 lease-investment linkage projects, with a delivery amount of 68 million yuan (vs. 95 million yuan in 2021). The first phase of the Lease Investment Linked Fund progressed smoothly. The first phase of the fund (scale of 200 million yuan) invested in a total of 16 projects, and insurance funds were introduced to establish a second phase fund (scale of 500 million yuan) during the year. In terms of the stock options business, the company signed 135 new equity projects in 2022 (12 in VS 2021) and 152 stock pool projects; achieved the first share rights transfer in '22, with a profit of 500,000 yuan.

The financing structure has been improved, and the share of loan balances from related parties has declined further. Looking at the average loan balance perspective, the company's dependence on related party capital continues to decline. At the end of 2022, the company's loan balance from related parties was 4.2 billion yuan, accounting for 7.8% /yoy-13.6pct (compared to 41.2% in 2018, the largest source of financing); commercial bank loans were still the company's main source of capital, with loan balance accounting for 50.7% /yoy-1.2pct; asset-backed securities accounted for 41.5% /yoy+14.8pct of the loan balance. In 2022, the company received China Securities Pengyuan's AA+ principal credit rating and successfully issued Phase 2 Intellectual Property Asset Support Plan (Specialized, Special and New), with a total issuance scale of 198 million yuan.

Investment analysis opinion: Maintain the company's buying rating. In 2022, the company maintained relatively good profit growth in a volatile capital market environment, and asset quality was stable, and the equity business began to take shape. Considering that the growth in the company's interest-bearing asset balance fell short of expectations, the 23-24E interest-bearing asset growth rate assumption was lowered, so the 23-24E profit forecast was lowered, and a 25-year profit forecast was added. We believe that the company, as a leader in financial leasing that is deeply involved in technology and the new economy, is supported by national policies, has optimistic industry prospects, and still maintains its buying rating. We forecast net profit of 23-25E to be 287, 335, and 381 million yuan respectively (the original forecast for 23-24E was 337 and 446 million yuan), up 27%, 17%, and 14% year-on-year, corresponding to the current stock price PB of 0.31, 0.29, and 0.26 times, respectively.

Risk warning: Regulatory uncertainty in the technology and new economy industries and the financial leasing industry; customer expansion falls short of expectations.