【行业研究报告】宏信建发-2023 earnings in line; 15% share price pullback looks overdone

PLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGEPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGEMOREREPORTSFROMBLOOMBERG:RESPCMBRORhttp://www.cmbi.com.hk1MN13Mar2024CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdateHorizonCD(9930HK)2023earningsinline;15%sharepricepullbacklooksoverdoneHorizonCD’scorenetprofitin2023grew10%YoYtoRMB1bn,inlinewithourexpectation.Whilethelackofdividendpayoutisdisappointinggiventhatpositivefreecashflowisachieved,webelievethe15%sharepricepullbackyesterdaywasoverdone.Werevisedownour2024E-25Eearningsforecastby6-7%,as(1)welowerouroperatingleaseservicerevenuegivenlesscapexwillbespentonequipment,(2)werevisedowntherentalrategiventhecontinuousdowntrend.Thesetwofactorscouldbeslightlyoffsetbythepositiveimpactfromthelowerdepreciationexpenseafterthechangeinaccountingpolicystartingthisyear.Onthevaluationfront,wenolongerapply13xtargetP/Easit’slesslikelytobereachedaftertherecentremovalfromtheStockConnect.OurnewTPofHK$3.7isbasedon9x2024EP/E,whichis10%discounttothecurrentP/EofHuatie(603300CH,NR).HorizonCDistradingatonly3x2024EP/E,suggestingthatthemarketisgivingalmostnovaluetoanypotentialearningsgrowth.Keyhighlightsin2023results:Totalrevenuegrew22%YoYtoRMB9.6bn.Grossmargincontracted0.7pptYoYto39.1%,asplatform&engineeringbusiness(lowermargin)grewfasterthanoperatingleaseservices.Selling&distributionexpenseratioincreased1.2pptYoYto5.4%.Forthesakeofprudence,Horizonincreasedthenetexpectedcreditloss(ECL)ratioby1.5pptYoYto2.9%.Excludingthelistingexpenseaswellastheinterestexpense&FXchangefromtheredemptionliabilitiesonpre-IPOinvestment,corenetprofitgrew10%YoYtoRMB1.04bn.Operatingcashinflowincreased40%YoYtoRMB3.95bn.Withnetcapexofonly~RMB1.8bn,HorizonachievedfreecashflowofRMB2.1bn.Netdebttoequityratiodroppedto147%atend2023(vs286%inDec2022).Operatingleaseservices(53.5%ofrevenue).Thesegmentrevenuedropped1%YoYtoRMB5.1bnin2023(-9%YoYin2H23),asthedecreaseinrentalratesoffsettheincreaseintheoverallutilisationrate.Asatend2023,Horizonhad494serviceoutlets(4overseas)and232kcustomers(+47%YoY).Engineering&technicalservices(30.8%ofrevenue).Thesegmentrevenuegrew39%YoYtoRMB2.9bnin2023(acceleratedin2H23),withgrossmarginreducedby0.8pptYoYto29.2%.Platform&otherservices(15.7%ofrevenue).Thesegmentrevenuesurged1.7xYoYtoRMB1.5bnin2023.Breakdown:(1)Platformservicerevenuesurged3xYoYtoRMB984mn,drivenbytheadoptionofasset-lightmodelforAWPbusiness.ThemanagedfleetsizeofAWPgrew>1.6xYoYto56.7kunits.(2)Tradeandothersrevenuegrew72%YoYtoRMB522mn.Thesegmentgrossmarginexpanded8.7pptto40.2%.EarningsSummary(YE31Dec)FY22AFY23AFY24EFY25EFY26ERevenue(RMBmn)7,8789,61110,90812,15013,269YoYgrowth(%)28.322.013.511.49.2Adjustednetprofit(RMBmn)944.81,043.01,204.31,469.71,717.9YoYgrowth(%)28.210.415.522.016.9EPS(Adjusted)(RMB)0.330.340.380.460.54ConsensusEPS(RMB)na0.000.380.480.00P/E(x)na3.83.12.62.2P/B(x)na0.40.30.30.3Yield(%)na0.04.85.96.9ROE(%)10.511.010.611.612.3Netgearing(%)286.4147.2118.389.064.1Source:Companydata,Bloomberg,CMBIGMestimatesTargetPriceHK$3.70(PreviousTPHK$5.20)Up/Downside189.1%CurrentPriceHK$1.28ChinaCapitalGoodsWayneFUNG,CFA(852)39000826waynefung@cmbi.com.hkStockDataMktCap(HK$mn)4,092.5Avg3mthst/o(HK$mn)6.952wHigh/Low(HK$)NA/NATotalIssuedShares(mn)3197.2Source:FactSetShareholdingStructureFarEastHorizon66.7%Source:HKExSharePerformanceAbsoluteRelative1-mth-49.2%-53.2%3-mth-68.4%-69.7%6-mth-70.2%-68.6%Source:FactSet12-mthPricePerformanceSource:FactSetRelatedreports:HorizonCD-Sell-offunjustified;expectpressuretoendin2-3days;BUYonpriceweakness–13Mar2024(link)HorizonCD–Expectsolid2023Eearnings;Higherfreefloattoboostvaluation–10Jan2024(link)HorizonCD-1H23coreprofit+10%YoY;positiveonthestructuralgrowthandmgmt.execution–9Aug2023(link)HorizonCD-No.1equipmentoperationserviceproviderreadytocapturetheopportunitiesinAWP–5Jul2023(link)BUY(Maintain)May-23Aug-23Nov-23Feb-241.001.502.002.503.003.504.004.505.009930HKHSI(Rebased)(HK$)