2015 results in line
Huarong reported 2015 revenue of Rmb75.4bn and net profitattributable to shareholders at Rmb14.5bn, respectively up 48%& 36% YoY, driven by solid growth in all business segments.
Trends to watch
IRR improved notably for TDAM business. Huarongquickened its acquisition and disposal pace with higher utilizationof funding. IRR increased notably by 4.2ppt to 20.2%, betterthan expected.
RDAM remained resilient with stable asset quality andimproving provision coverage. Impairment ratio declined abit to 1.5% while provision/loans further increased to 8.7%,suggesting a thicker buffer to mitigate concerns over credit riskamid macro downturns. Annualized yield declined to 12.5%, yetfunding cost fell to 5.55% at the same time. We expect DAM tocontinue to deliver high-teens ROAE with IPO proceeds utilizedin 2016.
Greater contribution from financial services and assetmanagement & investment, while banking, leasing andtrust business credit exposure were well managed.
Earnings forecast
Fine-tune 2016e EPS by +2.9% to Rmb0.48 and 2017e by 0.3%to Rmb0.58.
Valuation and recommendation
Maintain BUY and TP of HK$3.69 unchanged, implying 1.05x2016e P/B as we believe Huarong could benefit from a morerobust real estate market.
Risks
Correction of the housing market.