2017 results in line with expectations
Legend Holdings posted 2017 results: Revenue grew 7% toRmb316.3bn; net profit attributable to shareholders rose 4% toRmb5.0bn or Rmb2.14/share. Final DPS was Rmb0.27 （up 12%）。
Trends to watch
Optimizing investing portfolios. Legend continues to increaseexposure to emerging industries to explore opportunities and reduceLenovo’s influence on portfolio returns. It acquired leading preschoolvendor Better Education to enrich modern consumption & serviceinvestments, revenue from which rose 32% in 2017. It has also said itwould acquire BIL Bank （assets around Rmb180bn） and build acomprehensive global platform for financial services, revenue fromwhich rose 130% in 2017. Legend has also grown more competitive infruits and animal protein by further integrating upstream resourcesand downstream channels to improve agriculture & food operations,revenue from which grew 52% in 2017. We expect it to continue tooptimize its portfolios to maintain strong growth and boost margins.
Financial investments improve visibly. Revenue rose 21% in 2017 ona more bullish market and exits from several projects. Hony Capitaland Legend Capital each exited 21 projects, earning respectiveproceeds of Rmb1.47bn （median IRR: over 16%） and Rmb700mn （IRR:
35–40%）。 We believe this business will keep delivering steady growthand returns as operations mature. Rising interest rates, however,could create funding cost headwinds, impacting Legend’s margins.
Earnings forecast
We trim our 2018 revenue and NP forecasts 4% and 8% toRmb302.7bn and Rmb5.1bn on rising Lenovo negatives and introducecorresponding 2019 forecasts of Rmb302.7bn and Rmb5.3bn.
Valuation and recommendation
Legend trades at 10x 2018e and 9x 2019e P/E. Maintain HOLD andraise TP 9% from HK$22 to HK$24, based on SOTP NAV valuation。
Risks
Weak economic performance; uncertainties in capital market