Company introduction

After the approval of the State Council, China Cinda Asset Management Co., Ltd was established by the MOF in Beijing on 29th June 2010. The company is the leading AMC in China, and focuses on distressed asset management and provides customized financial solutions and differentiated asset management services to the clients through the synergistic operation of the diversified business platforms. The main businesses are: distressed asset management, investment and asset management and financial services. In 2012, China Cinda introduced four strategic investors such as NSSF, UBS and so on with the total shares of 16.54%.

Summary

-China Cinda (or the Group) announced that it would make the IPO application on 28th Nov 2013, and planed to listed in H Shares on 12th Dec 2013, which is the first domestic AMC listed in Hong Kong;

-China Cinda will issue 5,318.84 million shares in H shares with the offering price range between HK$3 and HK$3.58. The funds will be used for increase the capital, 60% for expanding the core businesses, 20% for developing financial investment and asset management, and the rest for the Group's financial affiliates and improving the operating efficiency;

-China Cinda is the leading AMC in China, and initially aims to manage the distressed assets of China's large-sized financial institutions, mainly for state-owned banks, and therefore it has the strong governmental background;

-China Cinda is the leader of China's distressed asset management industry in terms of income, profit, business scale and cash recovered. By the end of 2012, it had acquired distressed assets with an aggregate Original Value of RMB1.11 trillion, representing a market share of 35.5% among the 4 AMCs, and it also had cumulatively recovered cash in the amount of RMB276.9 billion from the disposal of distressed assets, around 38.3% among the Big-4;

-China Cinda's main businesses include: Distressed asset management, investment and asset management and financial service, and distressed asset management is the major part, by the end of 1H2013, the proportion of the incomes of these three businesses to the Group's total income recorded 53.8%, 17.7% and 29.5%, and the EBTs of each part were 72.3%, 22.3% and 5.5% of the Group's total EBT respectively;

-From 2010 to 2012, the balance of the distressed debt assets, income from distressed debt assets, and investment gain from the DES Assets recorded a CAGR of 164.3%, 17.8% and 25.9% respectively;

-China Cinda's FI Distressed Assets primarily include NPLs and other distressed debt assets from banks, especially from Large-sized Commercial Banks, but the proportion dropped from 98.9% in 2010 to 30.3% in 1H2013, and the portions of Small and middle-sized Commercial Banks, and City and Rural Commercial Banks appeared increase, especially the portion of other Non-bank Financial Institutions increased significantly from 1.1% to 12.6%;

-Additionally, DES Asset Management also is one of the major businesses of China Cinda, and it gains a large amount of DES Assets primarily through D/E swap, receipt of equity in satisfaction of debt and other distressed assets related transactions, and owns diversified comprehensive income through dividend income, disposal income and restructuring income and so on;

-The Group's DES Assets are mainly unlisted shares of DES Companies, by the end of 1H, China Cinda held 182 DES Companies with total book value of RMB34.38 billion and Listed DES Assets in 67 DES Companies, with total book value of RMB9.28 billion. It is worthy of noting that the calculated value of China Cinda's top 20 Unlisted DES Asssets was RMB62.3 billion from the third-party valuation specialist, compared with acquisition costs of RMB27.7 billion, representing the huge opportunity of the profitability;

-Overall, the businesses of China Cinda increased significantly due to the rich supply in the market, and the profit maintains quite high growth rate. By the end of 1H2013, incomes of Distressed Asset Management increase strongly by 87.6% y-y to RMB10.049 billion, and the proportion up from 43.9% in 1H2012 to 53.8%. The EBT increased by 23.7% y-y approximately to RMB37.11 billion, and the proportion down to 72.3% slightly;

-We believe the performance of China Cinda will maintain stable improvement with quite high growth rate of profits, which may record the y-y growth rate of 40% approximately in net profit this year;

-It has quite large uncertainty of the performance estimation for China Cinda due to its unique and complicated operating model, which is difficult to find the benchmark, based on the current range of the offering price, equivalent to 1.1-1.3xP/B in 2013, and we think the valuation is quite reasonable considering the level of the P/Bs in current domestic listed banks and insurers. However, we have the confidence in China Cinda's future performance due to its strong shareholders` background, unique business model and obvious competitive advantages, give the 12-m target price of China Cinda to HK$4.5, around 26% higher than its upper offering price, initially recommend Buy rating.

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