Performance review

Shengye's 2023 performance fell short of our expectations

Shengye announced 2023 results: The company's 2023 revenue was +20% to 960 million yuan, and net profit to mother was +22% to 270 million yuan, lower than our previous expectations, mainly due to the company's promotion of platform-based model transformation and profit model adjustments.

Development trends

The digital finance business is growing steadily, and platform-based transformation is being promoted simultaneously. The company's 2023 digital finance business revenue (interest income + guarantee fee revenue) was +16% to 723 million yuan (share of total revenue ~ Thanks to a steady increase in the average daily balance in the company's statement, the average daily balance in the company's 2023 statement was +17% year-on-year to 7.9 billion yuan. The company's average borrowing interest rate in 2023 was +1.2ppt to 6.6% year on year, and the net interest spread (NIM) was -1.1 ppt to 3.7% year over year, mainly due to relatively high overseas financing costs. Looking ahead, considering that the company is currently actively promoting the transformation of the platform-based strategy and achieving more business expansion through platform-based service models in the future, we expect the average daily balance in the company's 2024 statement to grow or slow down.

Deepen cooperation with high-quality central enterprises and leverage incremental capital to help the platform business expand rapidly. The company's platform service revenue in 2023 was +105% to 150 million yuan, mainly due to the fact that the business growth of factoring companies established in joint ventures with high-quality state-owned central enterprises in Wuxi, Ningbo, Xiamen and Qingdao exceeded expectations, and the company's average off-balance in 2023 was +200% to 5.97 billion yuan. Looking ahead, considering that there is still room for improvement in the leverage of the four joint factoring companies and that Ningbo Guofu/Wuxi Guojin has completed capital increases and is expected to leverage more incremental capital, we expect the company's average off-balance to grow rapidly over the next two years.

A high dividend ratio rewards shareholders and enhances long-term investment attractiveness. Due to the smooth asset-light transformation of the company's business, in order to better give back to shareholders, the company declared a 2023 dividend of HK$0.269 per share. The annual dividend rate ~ corresponding to the current dividend rate ~ we believe this move is expected to increase its long-term investment appeal.

Profit forecasting and valuation

Taking into account the transformation of the company's business model and adjustments to the profit model, the 24e net profit forecast was lowered by 15% to 300 million yuan, and the 25e forecast was introduced. The company currently trades at 12x/9x24e/25e P/E. The company's target price was lowered by 9.5% to HK$6.01 (corresponding to 17x/13x 24x/25x P/E), maintaining an outperforming industry rating, with an upward margin of 45%.

risks

Demand recovery fell short of expectations; the company's new business development fell short of expectations; asset quality fluctuated greatly.