20220830-招银国际-远东宏信-03360.HK-Continual_NIM_expansion_in_1H22_4页_854kb

Far East Horizon (3360 HK) Summary

Core Content Overview

Far East Horizon (FEH) reported strong financial performance in 1H22, despite challenges posed by ongoing COVID restrictions. The company achieved a 10% YoY increase in net profit, reaching RMB2.84bn, which accounted for 47% of the FY22E forecast. The solid earnings growth was attributed to three main factors: continual NIM expansion, robust growth in interest-earning assets, and strong revenue growth from industrial operations. The company also maintained stable asset quality, with a 2bps HoH improvement in the 30+ days overdue ratio and a flat NPA ratio at 1.06%.

Looking ahead to 2H22, analysts expect the NPA ratio to improve further and the NIM to remain high, supported by the inclusive finance business and other innovative business lines, which are anticipated to become new growth drivers.

Key Financial Highlights

• Revenue Growth:
  • 1H22: RMB38,210 million
  • YoY growth: 13.6%
• Operating Profit:
  • 1H22: RMB12,049 million
  • YoY growth: 7.3%
• Net Profit:
  • 1H22: RMB5,997 million
  • YoY growth: 8.8%
• EPS (Reported):
  • 1H22: RMB1.4
  • YoY growth: 2.2%
• Consensus EPS:
  • 1H22: RMB1.6
• Valuation Metrics:
  • P/E (FY22E): 3.9x
  • P/B (FY22E): 0.5x
  • Dividend Yield (FY22E): 6.8%
  • ROE (FY22E): 13.9%
• Target Price: HK$12.50
• Current Price: HK$6.09
• Upside Potential: 105.3%

Main Business Drivers

Financial Business

• NIM Expansion:
  • +53bps YoY, or +32bps HoH, driven by lower funding costs due to eased liquidity and optimized funding sources.
• Asset Quality:
  • 30+ days overdue ratio improved by 2bps HoH.
  • NPA ratio remained flat at 1.06%.
• Future Outlook:
  • Asset growth and NIM to remain stable.
  • NPA ratio is expected to improve as the negative impact of COVID restrictions peaks.

Industrial Operations

• Revenue Contribution:
  • Increased to 35% in 1H22 from 32% in 1H21.
• Income Growth:
  • Equipment operations: 47% YoY
  • Hospital operations: 4% YoY
• Future Outlook:
  • Net margin is expected to recover in 2H22 as expense ratio normalizes from elevated levels due to lockdowns in Q2 2022.

Financial Summary

Valuation Metrics

Analyst Ratings

• CMBIG Rating: BUY
• Rationale:
  • FEH is expected to deliver over 15% return over the next 12 months.
  • Expanding new business lines like inclusive finance are expected to support margin expansion and improve profitability.

Shareholding and Stock Data

• Market Cap (HK$ mn): 26,272.3
• Avg 3 mths t/o (HK$ mn): 6.5
• 52w High/Low (HK$): 9.04 / 5.87
• Total Issued Shares (mn): 4,314.0
• Shareholding Structure:
  • Sinochem Group: 21.3%
  • Kong Fanxing: 18.6%

Analyst Certification

• The research analyst certifies that the views expressed accurately reflect their personal opinions.
• No compensation is directly or indirectly related to the specific views in the report.
• The analyst does not trade in the stock covered within 30 days prior to the report and will not trade within 3 business days after.

CMBIG Ratings Definitions

• BUY: Potential return of over 15% in 12 months.
• HOLD: Potential return of +15% to -10% in 12 months.
• SELL: Potential loss of over 10% in 12 months.
• NOT RATED: Not rated by CMBIGM.

Important Disclosures

• Investment Risks: The report is not tailored to individual investors and does not guarantee future performance.
• Liability Disclaimer: CMBIGM does not assume liability for any loss, damage, or expense from reliance on the report.
• Conflicts of Interest: CMBIGM may have investment banking relationships with the companies discussed, which could affect objectivity.

Regulatory Notes

• United Kingdom: Report is only for Article 19(5) or Article 49(2)(a) to (d) investors.
• United States: Report is for major US institutional investors only.
• Singapore: Distributed by CMBISG, an Exempt Financial Adviser, and subject to Singapore regulations.