Horizon CD will release 2023E earnings on 12 Mar. We expect Horizon CD to deliver core net profit of RMB1bn (+20% YoY). Given the transformation to asset-light model, we expect Horizon CD substantially scaled back the capex in 2023E to ~RMB1bn (from our previous forecast of >RMB4bn). While we trim our earnings forecast by 3%/12% in 2024E/25E on lower capex assumptions, we see stronger free cash flow going forward, which potentially helps reduce the net debt/equity ratio to 106% by end-2025E (versus 159% as at end-Jun 2023). We see overseas as a new growth driver as Horizon CD targets to establish 20 service outlets in 2024E (up from five in 2023E). In the near term, the distribution of Horizon’s shares on 16 Jan by Far East Horizon (3360 HK, BUY, covered by Finance team) will potentially boost trading volume and valuation. Maintain BUY with a new TP of HK$5.2.
　　2023E earnings preview: We forecast revenue growth of 13% YoY, on the back of fast growing platform service revenue. Excluding the listing expense as well as the interest expense and FX change from the redemption liabilities on pre-IPO investment, we estimate core net profit of RMB1bn.
　　Growth of AWP fleet size through re-renting. We expect Horizon CD has built up a fleet of 180k units by end-2023E, including ~50 units entrusted by other equipment owners (i.e. re-renting). We forecast Horizon to add 30-50k units in 2024E, which will be largely by re-renting.
　　Overseas expansion a growth driver. We estimate Horizon CD established five service outlets in overseas in 2023E. Horizon CD has already started offering operating lease services in some overseas areas. Horizon targets to take the overseas service outlets number to 20 in 2024E, covering regions such as Saudi Arabia, Turkey, Dubai etc. We understand that the pricing in some overseas markets is much higher than that in China.
　　Higher free float to boost turnover. Far East Horizon is the controlling shareholder of Horizon CD. In the EGM held in late Dec, shareholders of Far East Horizon approved the plan to distribute 160mn shares of Horizon CD through special dividend. Every 27 shares held by Far East Horizon’s shareholder will be eligible to obtain one share of Horizon CD. The shares (5% of Horizon’s total o/s shares) will be distributed on 16 Jan.
　　Maintain BUY. We revise up our TP to HK$5.2 (previously HK$4.8), based on 13x P/E which is equivalent to the two-year average of Huatie (603300 CH, NR), the major peer of Horizon CD. Our higher TP is to reflect (1) the rollover of valuation base to 2024E, (2) the lower risk of balance sheet as a result of the adoption of asset-light model, and (3) better liquidity.