Introduction to this report:
The company's revenue in 2023 was 3.76% year-on-year, mainly due to rapid growth in industrial operations; net profit to mother was 1.04% year-on-year, in line with expectations, maintained an “increase” rating, and maintained a target price of HK$11.96.
Summary:
The “Overweight” rating was maintained, and the target price was maintained at HK$11.96, corresponding to the 24-year P/E of 5.61x.
The company achieved revenue of 37.960 billion yuan in 2023, up 3.76% year on year, mainly due to rapid growth in industrial operations, with revenue of 11.38% year on year, while financial business was slightly pressured by the economic environment and revenue was -0.58%; net profit to mother was 6.193 billion yuan, 1.04% year over year; dividend of 0.5 HKD/share, with a dividend rate of 31%, exceeding expectations. Considering that the slow recovery in the current external economic environment affects the financial business growth rate, the 2024-2026 EPS was reduced to 1.57 (1.89,-17.0%) /1.82 (2.17,-15.9%) /2.25 yuan. The “Overweight” rating was maintained, and the target price was maintained at HK$11.96.
Actively adjust the revenue structure to give full play to the unique advantages of industrial operations. In '23, the company took the initiative to adjust its revenue structure, give full play to its advantages in industrial operation, expand the operating contribution of industrial operations, and mitigate the negative impact of weak financial business demand. On the financial side, net interest-bearing assets were RMB 269.1 billion, with an average interest yield of 8.24%, an increase of 0.24pt over the previous year, mainly due to excellent customer service and stable pricing brought about by new comprehensive financial services. The average cost ratio of interest-bearing debt was 4.26%, an increase of 0.20 pt over the previous year, mainly due to the issuance of various new bond products, and the increase in costs due to the increase in yield in the bond market in 23, as well as the increase in costs due to new withdrawals from overseas banks affected by the overseas interest rate hike cycle. Net interest spread for 23 years was 4.58%, -0.09pt year on year; net profit spread 3.98%, 0.04pt year on year, relatively stable. Asset quality is stable, moderate and improving, and the ratio of non-performing assets decreased by 0.01pt to 1.04%; the proportion of assets overdue for 30 days or more remained 0.91%.
In terms of industrial operations, the revenue share increased from 36.02% to 38.68%, effectively hedging the impact of the cycle and external environment on the company. Among them, Hongxin Construction and Development continues to expand overseas markets and improve management efficiency through digitalization and intelligent construction. By the end of '23, the number of aerial work vehicles had reached 177,600 units, and the total management scale of material assets was about 2.28 million tons. It has set up 490 domestic and 4 overseas service outlets. Revenue in 2023 was $9.611 billion, 22.0% YoY. Hongxin Health continued to optimize the hospital layout and voluntarily withdrew from 5 hospitals that did not meet development standards. Currently, it holds 25 hospitals, and achieved revenue of 4.238 billion yuan in 2023, or 15.53% over the same period last year.
The company is accelerating the “financial+industry” strategic upgrading and system transformation, and is expected to drive sustainable growth in performance. The financial business will implement system changes to optimize the fineness of business development through organizational structure adjustments, etc., such as traditional finance front-end and back-office, strengthening front-line empowerment; and optimizing resource allocation and strengthening risk management for new types of businesses. The huge development space for industrial operations is expected to bring about sustainable growth. Among them, Hongxin C&D will continue to deeply cultivate the domestic market and seize the growth opportunities of the Southeast Asian market; Hongxin Health seizes the strategic opportunities of a healthy China and an aging population and focuses on the layout of low-tier cities.
Catalysts: Strong demand for corporate financing, and burgeoning demand for equipment operation and medical services.
Risk warning: Asset quality has deteriorated dramatically; the industrial operation sector falls short of expectations.