Leading local financial control enterprises, deepening collaboration with internal and external expansion

The Guangzhou State-owned Assets Administration Commission actually controls, Yuexiu Group's resources support, and intranet expansion and collaboration to help growth. Yuexiu Capital is the only A-share listed company under Yuexiu Group. It has been fully transformed into a comprehensive financial platform through “two in, one out, one restructuring”. Using shareholders' industrial resources, we are expanding internal industry-finance collaboration and deepening external strategic cooperation to form a “3+1" core industrial structure of non-performing asset management, financial leasing, investment management and strategic investment in CITIC Securities, helping profitability break through and improve. We are optimistic about the company's growth potential under green transformation and deepening collaboration. We expect the company's 2023-2025 EPS to be 0.52, 0.61, and 0.67 yuan, and BPS of 5.73, 6.13, and 6.57 yuan. Under the segment valuation method, the estimated market value is 41.4 billion yuan, corresponding to the target price of 8.25 yuan/share, covering the “buy” rating for the first time.

Industrial transformation, comprehensive finance, and shareholders are rich in industrial resources

Group resources lay the foundation, and Yuexiu Capital's profitability is industry-leading and stable. Yuexiu Capital is a comprehensive financial platform owned by Yuexiu Group. The actual controller is the Guangzhou Municipal State-owned Assets Administration Commission. The company's predecessor was Guangzhou Friendship Store. Since 2017, it has successively completed a comprehensive strategic transformation of “two in, one out, one restructuring”, divested some of its assets, and also led the establishment of the second local AMC in Guangdong Province, and transformed into a diversified financial investment holding group with comprehensive financial services. Backed by Yuexiu Group's “4+X” modern industrial system, Yuexiu Capital fully enjoys the advantages of collaborative development among various sectors. The company's overall operating income showed an upward trend, and net profit from the parent company fluctuated upward. Profitability was leading and performance stability was strong among central country capital controlled enterprises.

Photovoltaics drive green transformation, and the “3+1" business has blossomed more

Distributed photovoltaics lead the green transformation, and businesses have blossomed more under the “3+1" industrial structure. The company built a “3+1” core industrial structure of non-performing asset management, financial leasing, investment management and strategic investment in CITIC Securities. Financial leasing and AMC business profits contributed significantly. Specifically, the financial leasing asset quality is excellent, and the distributed photovoltaic business drives the deepening of green transformation, which is expected to drive further growth in business scale and profitability; investment management achieves “cornerstone investment+direct investment”, and rapid scale growth; AMC's business has significant regional advantages, and Guangzhou's asset cost ratio is lower than that of AMC companies in the same echelon, optimistic about future asset disposal earnings potential during the economic recovery period; strategic investment in CITIC Securities provides the company with investment income and business resources.

2023E is expected to return a net profit of +5% year-on-year

We are optimistic about the company's growth potential under green transformation and deepening collaboration. We expect total operating income for 2023-2025 to be 138, 145, and 16 billion yuan, respectively, with a year-on-year difference of -3%, +5%, and +11%, respectively. Net profit of 26, 3.1, and 3.4 billion yuan, respectively, a year-on-year difference of +5%, +16%, and +10%, respectively; and EPS of 0.52, 0.61, and 0.67 yuan, respectively. We expect the total target market value of the subsidiaries held by the company to be 59.2 billion yuan. Considering that the valuation of integrated financial platforms usually has a certain discount in the secondary market, after giving a 30% discount to the group, Yuexiu Capital's target market value is expected to be 41.4 billion yuan, corresponding to the target price of 8.25 yuan/share.

Risk warning: Policy progress falls short of expectations, risk of market fluctuations.