1H24 results are basically in line with market expectations

China Cinda announced 1H24 results: 1H24 revenue increased 2.3% year on year, and net profit to mother fell 47% year on year; in line with market expectations, basically consistent with previous profit warnings. The year-on-year decline in profit was mainly due to an increase in provisions. The company actively responds to current industry pressure, actively optimizes the balance and liability structure, explores capital-light business development, continues to promote digital communication construction, and effectively expand the transformation and upgrading of business models.

Development trends

Acquisitions of operating and other non-performing asset businesses drive revenue growth. 1H24's revenue increased 2.3% year over year, mainly contributed by acquisitions and other non-performing asset businesses.

Revenue from the acquisition and operation business increased 11.5% year over year, mainly due to an increase of 2.7 ppt/4.1ppt to 10.9% year over 2h23. We believe that the increase in the internal rate of return may be due to the company speeding up asset turnover while innovating disposal methods to improve disposal capacity. In addition, the parent company's revenue from other non-performing asset businesses increased 3.6 billion yuan year over year, which we believe may be affected by factors such as last year's low base and more stable project valuations.

Revenue from the acquisition and restructuring business decreased by 50% year on year, mainly due to a 40.5% year-on-year decrease in scale, and the average monthly annualized yield decreased by 0.7 ppt to 6.1% year over year. Revenue from the debt-for-equity business fell 63% year over year. On the one hand, the valuation of some debt-for-equity assets declined due to market fluctuations, and on the other hand, the poor performance of some joint ventures also had an impact.

Debt costs declined month-on-month. The cost of 1H24 debt is 3.41%, down 4 bps from 2H23. We think it may be due to the company moderately increasing the share of low-cost interbank debt and bond financing to offset the impact of the higher interest rates on foreign currency deposits at the Southern Commercial Bank. After excluding deposits in 1H24, the cost of debt decreased by 12bps to 3.49% compared to 2H23.

The depreciation ratio between non-performing debt assets and loans increased. 1H24 asset impairment losses increased 58% year over year. Among them, impairment losses for non-performing assets measured at amortized costs increased 14% year over year, loan impairment losses increased 31% year over year, and impairment losses on other debt investments measured at amortized costs increased 80% year over year (already down from 2H23). The impairment ratio of acquisition and restructuring of non-performing assets increased by 5.79ppt to 19.45% from the end of 2023, and the provision coverage rate decreased by 5ppt to 107% from the end of 2023; the share of the real estate industry was 67%. The impairment ratio of customer loans and advances measured by amortized costs increased 1.2ppt to 7% compared to 2023. The additional impairment mainly came from the Yangtze River Delta region; the non-performing rate of the Southern Commercial Bank increased 52 bps to 2.84% compared to 2023. The depreciation ratio of investment products declined slightly by 0.2ppt to 5.3% from 2023, and the overdue ratio decreased by 3.3ppt to 6.4% compared to 2023.

Profit forecasting and valuation

Considering that asset quality is under short-term industry pressure, we lowered 2024E net profit by 16% to 4.7 billion yuan, and 2025E net profit by 15% to 4.7 billion yuan. The current stock price corresponds to 0.14x/0.14x2024E/2025E P/B. Maintaining a neutral rating, considering that the company is currently in a period of structural adjustment and short-term pressure on performance, we lowered our target price by 21% to HK$0.69, corresponding to 0.15x/0.15x 2024E/2025E P/B, which has 7.8% upside compared to the current stock price.

risks

The quality of non-performing main businesses and loan assets deteriorated beyond expectations, and the yield of non-performing main businesses declined.