20221028-招银国际-远东宏信-03360.HK-NIM_expansion_continued_in_3Q_4页_857kb

Far East Horizon (3360 HK) Summary

Core Content Overview

Far East Horizon (3360 HK) reported stable and decent financial results for the third quarter of 2022 (3Q22), despite macroeconomic headwinds. The company's total revenue and net profit for the first nine months of 2022 (9M22) both grew by approximately 10% year-over-year (YoY), aligning with the growth seen in the first half of 2022 (1H22). The revenue contribution from industrial operations remained robust, surpassing 35% in 9M22. The company also managed to expand its net interest margin (NIM) on both a quarterly and annual basis, attributed to improved funding structure and cost management. The non-performing assets (NPA) ratio remained stable at 1.06% at the end of 3Q22, and the provision coverage ratio was at a sufficient level. The report reiterates a BUY recommendation, citing long-term growth potential and improved profitability in new business lines.

Key Financial Highlights

• Revenue Growth (YoY):
  • 3Q22: +8.1%
  • 9M22: +10%
  • FY23E: +14.2%
• Net Profit Growth (YoY):
  • 3Q22: +5.5%
  • 9M22: +10.5%
  • FY23E: +10.5%
• EPS (Reported):
  • 3Q22: 1.2 RMB
  • FY23E: 1.5 RMB
• Valuation Metrics (FY23E):
  • P/E: 3.6x
  • P/BV: 0.5x
  • Dividend Yield: 7.4%
  • ROE: 14.0%
• Target Price: HK$12.50
• Current Price: HK$5.91
• Upside Potential: 111.5%

Key Business Segments

Financial Business

• NIM Expansion: Continued growth in NIM due to lower funding costs and more diverse funding sources.
• Asset Quality: Maintained stable NPA ratio and provision coverage ratio, supported by prudent risk management.
• Total Interest-Earning Assets (IEA): Grew steadily in 3Q22.

Industrial Operations

• Revenue Contribution: Exceeded 35% in 9M22, driven by strong performance in equipment operations.
• Net Margin Recovery: Expected to recover in 2023 as the expense ratio normalizes from elevated levels during the pandemic.

Balance Sheet and Financial Metrics

• Total Assets (FY23E): RMB 395,727 million, showing consistent growth.
• Total Shareholders Equity (FY23E): RMB 49,985 million.
• Total Liabilities (FY23E): RMB 333,367 million.
• Net Gearing (FY23E): 80.9%, indicating a high leverage position.
• Current Ratio (FY23E): 1.0x, suggesting liquidity is stable.
• Gross Profit Margin (FY23E): 50.0%, reflecting controlled cost management.
• Operating Margin (FY23E): 32.0%, showing operational efficiency.
• ROE (FY23E): 14.0%, consistent with historical levels.

Shareholding and Stock Data

• Market Cap: HK$25,504 million
• Average 3-Month Trading Volume: HK$24.83 million
• 52-Week High/Low: HK$7.91 / HK$5.17
• Total Issued Shares: 4,315.0 million
• Major Shareholders:
  • Kong Fanxing: 21.86%
  • Sinochem Group: 21.32%

Share Performance

• 1-Month Return: 4.0% (Absolute), 21.2% (Relative)
• 3-Month Return: -10.6% (Absolute), 22.0% (Relative)
• 6-Month Return: -10.2% (Absolute), 16.9% (Relative)

Analyst Recommendations and Ratings

• CMBIG Rating: BUY
• Potential Return: Over 15% over the next 12 months
• Analysts: Gigi CHEN, CFA and Nika MA

Risk and Disclosure Notes

• The report contains no individually tailored investment advice and is not an offer to buy or sell securities.
• CMBIGM may have investment banking relationships with the companies discussed.
• There are potential conflicts of interest due to market-making activities.
• The information is based on publicly available data and is not guaranteed for accuracy or completeness.
• The report is intended for specific institutional investors and may not be shared without consent.

Conclusion

Far East Horizon has demonstrated resilience in its financial performance, with continued NIM expansion and stable asset quality. The industrial operations segment has shown strong growth, contributing over 35% of total revenue. The company's valuation is attractive, with a low P/BV and high dividend yield, and the BUY recommendation is maintained based on its long-term growth potential and improved profitability in new business lines. Investors are advised to independently evaluate the investment and consider consulting a financial advisor.