CITIC Limited (267) Earnings Call Transcript & Summary

Thank you for the question. First, I'll take your first question, and my colleague would take the second one. I think this is a question that many investors are interested in. I would like to take this opportunity to exchange views with you on this question. I'm going to express my views in the three following aspects. First, the asset value of CITIC Limited has been clearly undervalued. The stock price trends deviated from our profitability and our better management capability. The current valuation is obviously remarkably lower than its intrinsic value. I think there are a couple of reasons. First, our company has a complex structure. We are a conglomerate with diversified business portfolio which makes it more difficult for investors and analysts to do their job. Besides, given the COVID-19 pandemic and travel restrictions, we have not had enough events to exchange views with analysts and investors. Therefore, the intrinsic value has not been discovered, and that applies to many assets in our company. And I ask the analysts of CITIC Securities to analyze our value, and they told me that if we use the same NAV valuation method, and if we add back some items which have been ignored by investors, the net asset valuation of the company would be HKD 100 billion to HKD 140 billion higher than the current market value. So that means our stock price will at least rise by 50%. Number two, many potential but crucial valuation factors have been ignored. The current valuation model is more of based on financial factors but less on other new valuation factors like ESG and policy orientation. For example, CITIC Limited is a pioneer among the SOEs in achieving the carbon picking targets and especially, the market has not realized the huge value of our headquarters in enabling their subsidiaries. People used to think that the headquarters of a conglomerate will make the business operation low efficient, but our headquarters are creating value and are innovating and they are also operating businesses. So they have a very high level of enabling effect to subsidiaries. On top of that, our efforts to promote our management capabilities was not recognized by the market. There were a few reasons, of course. The ratings by the Ministry of Finance of China increased from triple -- from BB to AA, I believe the investors must price that in when doing analysis. Besides, we have a very high level of synergy between different business segments of our group. It's hard to put them into numbers. I ask my colleagues to do some research on how we can quantify the value of our synergy. In recent years, CITIC Limited successfully expanded its ecosystem, and friend circle, so to speak, played an important role in promoting the value of our headquarters. On top of that, the systematic importance of CITIC Limited and stable dividends and profit and strong resilience. I think these potential advantages have not been reflected fully in your analysis and valuation. However, these factors are just core resources and capabilities that will drive the high-quality development of the company in the future. Number three, I think the valuation discount on a conglomerate is too high. We have a few independent directors who are very well-known professionals in the Global Capital Market, and they all think that it's normal to give a conglomerate like us some valuation discount. But I think the discount is too high. It's irrationally and unrealistically high. CITIC Limited has a special advantage in integrating technology industries and finance as a trial, this has been fully reflected in our business performance. Over the last couple of years, our business performance could speak volumes of the effort by the headquarters to enable different business segments to reinforcing each other. So a conglomerate like CITIC Limited, should not be granted a valuation discount for its comprehensiveness rather it should be given a comprehensive premium, because, as we said, when the economy is faced with downward pressure, we have the capabilities to reinforce each other different segments offsetting the risks. That's why I think we should have some premium valuation instead of discount. And from the perspective of the management, we take the undervaluation problem very seriously, and we will tackle this issue. This year, we restructured our Investor Relations team, and we started reform of market valuation. We have come through our work of market cap management since IPO. And we conducted investigation and research into major issues, and we have found some solutions. Now we have proposed a version 1.0 market value reform scheme based on value creation, value promotion and awareness raising. It consists of 12 immediate reform measures and 3 long-term reform measures. Some of the reformative measures have been implemented. And they worked well. Let me give you a few examples. We continuously improve the quality and efficiency of Investor Relations job. And we strengthened our exchange with capital markets, and we optimized our information disclosure, making our company more transparent. So the market will better understand and recognize the value of our conglomerate headquarters. Besides, we fully support the high-quality development of CITIC Bank and unlock its potential as a ballast stone for the market cap and profitability of CITIC Limited. In 2022, CITIC Bank was the only 1 in banking industry that achieved positive growth in total market capitalization. At the same time, we are helping high-quality subsidiaries spinoff for listings. For example, the applications from CITIC Metal for IPO registration has been approved by CSRC. And we expect that the company will go public in April this year. In organizational structure, we optimized the top design of market cap management. We set an ad hoc committee for market cap management headed by myself, to promote the working mechanisms of market cap management, and we explored the management scheme appraisal and incentive systems of market cap management. Both the management and other employees have higher awareness of the importance of market cap management. Over the years, we've been doing quite well in business operations. The stock price was up 48.76% in 2021, and 15.87% in 2022. In the same period, Hang Seng Index was down 15%. So our market cap was corrected to some extent. We have won the Golden Hong Kong Stock Award for 2 consecutive years. And that speaks to the recognition by investors and analysts of our continuous effort. Last but not least, I would say this very responsibly, and that is CITIC Limited has certainty in its value for long-term investment. If you can understand the nature and the trends of CITIC Limited, you will have full confidence for the value of our company in long-term investment, and you will receive remarkable returns from investing our company. In this year, despite the internal and external adverse factors, we gave stable dividends. We delivered high-quality assets, robust profit and secured liquidity, which manifested a very high level of investment certainty. Our management made promise of our strategy, which manifested the certainty of our value and its long-term commitment. I often tell my colleagues that strategies are promises. In 2022, CITIC Limited published the 14th 5-year plan. We have made our targets to reach HKD 10 trillion in assets becoming a top 100 company with a net profit of HKD 100 billion and with a HKD 1 trillion revenue. By 2022, we realized the first 3 objectives. Our total asset amounted to HKD 10.6 trillion. I believe we will rank 80th or 90th in Fortune 500 companies list. Our net profit has exceeded HKD 100 billion. And it will not take long for us to reach the HKD 1 trillion target. So we are very committed to our strategic objectives. This type of uncertainty is attributed to our confidence in the CPC Central Committee and the national government and effort by our employees and also the enabling capabilities of our headquarters and the confidence lies in the advantages and capabilities created by the integration of technology, industries, and finance. CITIC Limited will have very high level of advantage in different factors and by enabling our business performance with the 3 aspects, we will enable our business segments with sustained support. And going forward, we will pay more attention to technology innovation and digital transformation, so we can continuously improve our capabilities to create value. In current valuation system, ESG, social responsibilities and systematic importance have higher importance. So CITIC Group, CITIC Bank as the core pillars of our business will continue to see higher value, which will drive our stock price to its reasonable intrinsic value levels. Let me repeat I think reflected by the current stock price, our valuation is obviously too low. CITIC Limited has very high security margin and room for growth and value for long-term investment. You're all welcome to pay a visit in person to CITIC Limited. Investors and analysts are all welcome to pay a visit to our orders and other subsidiaries that you are interested in. Thank you.

About innovation, I would like to answer you from 3 levels. First, CITIC has always been committed to developing into a business of excellence in science and technology and innovation. This is also our core competitive edge. Secondly, at the moment, we are enhancing 2 things: first, the unified management system, the company has established Science and Technology Innovation Committee and Expert Committee. We have also worked out a comprehensive plan and management system for innovation. The second thing I want to enhance is our investment in science and technology. In 2023, our investment is going to more than 3% of revenue, is the first time in our history. This is a very high indicator and a substantial amount of investment in science and technology. The 3% is also a milestone record for us in our history. Recently, in recent years, we've also made breakthroughs in science and technology and innovation in all 5 sectors covered by the company. We have undertaken 22 national level research projects. I can give you some specific examples. For instance, CITIC Bank has developed a blockchain platform and has been approved by the Ministry of Industry and Information Technology and CITIC Heavy Industries has successfully created a human computing interaction function and the hydraulic heavy-duty robotic arm. The CITIC Steel has undertaken the high-speed rail bearing localization project. The Agriculture, CITIC Agriculture has produced 85 new varieties, achieving great results, introducing new varieties of rice and corn. So these are some of the innovations that we have been able to achieve in terms of digitization. There are several things worth noting. Thus, we have very clear goals in digital transformation. We have a data center already included in the 14th value of plan. We have a very clear pathway and targets. Secondly, digitization is well-founded but grounded in the company. We have been working in the digital space for many years. CITIC Telecommunications Asia Satellite and CITIC Network, all have relevant licenses. I have always said that we have network, we have scenarios. We also have a cloud. We also have a digital ecology. We have CITIC Cloud which is a big platform with a large capacity. CITIC Network has license. And all over the country, we have more than 150 stations to provide comprehensive by CITIC Solutions for our users. Internally, we have many different scenarios and different business modes which could give us the opportunity to innovate digitally in many different ways. We can support multiple business modes. So we have a very solid foundation for digital transformation. Just now, we heard about the valuation of CITIC being low from the real value. Actually science and technology and innovation as well as digitalization is also part of the value that has been underestimated by the market. Thirdly, in digital transformation, we are integrating this technology in business management and business development. We hope to use this digital technology to streamline our processes, improve management efficiency as well as the resource allocation and value management capabilities. The cloud is our base. And we -- on the cloud, we are developing our smart headquarters to cover financial management through risk management, collaboration in the business. We are already seeing -- beginning to see good results in the development of a smart headquarters. In addition to that -- in the different business sectors and the subsidiaries, we are trying our best to use the best technology and improve the digital transformation process, so that we could enable the different -- our competitiveness in different scenarios. We have a lot of achievements. For instance, #6 line is a model factory. The CITIC Steel is some -- is a totally digitized in its parallel line of production. All these achievements can be seen everywhere in the CITIC subsidiaries. The achievements are multitude in our subsidiaries and we welcome you to visit our subsidiaries to actually see and experience these advancements. We are going to continue to target being a business of excellence in science and technology. First, we are going to focus on AI new materials and green and low-carbon technologies so that we could make breakthroughs in the bottleneck problems and develop core technologies in the service of the national strategy and industrial development. Secondly, we must be a main player in the deep integration of technology, capital, industry and innovation. So that we become a new type of alliance. With all these capabilities, we should be the source and the high ground of innovation. Third, we have to be provide an enabling environment to promote the full life development policy support system for science and technology and stimulate the innovative mentality of our subsidiaries. We also want to build up our team of scientists and high-tech talents. Of course, we want to work with investees and the academia so that we could produce a world level innovation results. We believe this is not far from us. Thank very much.

Good afternoon, management. Thank you for the opportunity. From Goldman Sachs, I have 2 questions. The first one has to do with the property market. In your presentation, you mentioned that over the past year, CITIC Limited contributed a lot of effort into mitigating risks. So can you please talk about the business of CITIC properties? And how is it's risk exposure and how do you dispose of risks going forward? And my second question has to do with CITIC Financial Holdings. It was established a year ago and we've observed many changes since the year and what are the new stuff that we are expecting in the coming year? Thank you. Mr. Zheng will take the first question.

Thank you for the question. First, in 2022 -- I'd like to share with you the profit business in 2022. In 2022, our property business went very well. We have 2 entities, CITIC Pacific Properties and CITIC Urban Development Operations for property business. We've been committed to robust operation faced with market correction and downward pressure. Both CITIC Pacific Properties and CITIC Urban Development and Operation surpassed the objectives in our budget with a significant increase in net profit, especially CITIC Pacific Properties, which contributed with a record high of profit. The market is still in correction. But China is still in the process of continuous urbanization. There is always the need for properties. The rich demand will continue to unlock more potential. And we can see that from the data of National Property Associations. We will give full play to our advantage in new type of urbanization business, which has a lot to expect for in the future. Secondly, we have seen less risks in our financial services. In 2022, the exposure to real estate market was stable. There are 2 reasons. First, the concentration level. In real estate sector was down compared with the beginning of the year. Second, the exposure to major real estate customers was down. Thirdly we have seen some effective work in our efforts to achieve synergy between industries and financial services. And we have formed a stable and replicable model. We implemented the national strategies to mitigate risks with synergies between financial services and real economy. We coordinated our property sectors and banking branches to form the so-called fleet to make full use of different approaches like trust, segregation, mergers and acquisitions, agent construction and management cost of these services, et cetera. We can give full play to our professional capabilities, revitalizing our underlying assets implementing a number of property projects, making contribution to the stability of the financial market in China and the real estate market. Our risk management model is to mitigate risks with development, and we supported local governments in their efforts to guarantee supply and delivery of properties and people's livelihood. We maintained good quality of property development, and we have upheld interest of private companies, and we mitigated the pressure both on the downstream and upstream of the property developers. So it's a win-win strategy, where the home buyers and constructors are all satisfied with. And this has been recognized by the central government as well. Thank you.

Now I'd like to take up the second question about CITIC Financial Control Holdings. Thank you very much for your interest in CITIC Financial Holdings. If we want to -- if I'm going to assess the performance of CITIC FH, we could see that, that year is the beginning year for the company. We have started steadily and performed smashingly. And we have actually achieved, overachieved our targets. In fact, and people say that we have published analytical and that is to contribute financially to high-quality development of the economy. Giving a comprehensive introduction to our strategies in supporting the financial development of the communist party and the nation and the country. Our achievements are reflected in the following ways. First, the governance system is continuously improving. We have established a governance structure and procedures, we have also put in place the authorization plans as well as the division of responsibilities between CITIC Financial Controls, CITIC Limited and CITIC Company. We have now successfully transitioned to overall business operations. Secondly, we have promoted the monitoring and supervision reform. We want to be at the forefront of the industry in promoting the asset transfer approval process, which is a new experiment by the regulator. We have communicated actively with the regulator to formulate or shape the process. Secondly, we have focused on risk, capital and related trading as our core functions in financial controls. We call it risk management. 7 management mechanisms for risk management. We have also continuously explored innovation in our development, focusing on fintech and shared resources, wealth management and smart controls. Now the digital 1.0 system is fully online. We have formed a synergy in our businesses and products and have focused on key client groups in the provision of comprehensive services. We have also released financial resources into the real economy to provide strong support for the real economic development of the country. Since we have given full play to our role as the leading engine by effective management and active enabling processes, we have contributed 80% of the net profit of CITIC Holdings. This fully demonstrates our role as the leading institution for high-quality development. 2023 is going to be the first year in which we are going to have full operations. We will follow the policies interactions of the 20th Party Congress as well as the Central Economic Work meeting. We will embed ourselves in the national development plan and play our role in creating value. We're going to use capital as the connector, governance as the platform, and risk management as our baseline, and wealth management as a driver. In order to promote our brand and also to achieve good results in financial holdings. We are also going to be -- continue to lead in high-quality development. In order to improve all the key projects underway, our risk management still must be effective. Capital must be managed in a more sophisticated manner. There should also be new results being coordinated mitigation of risks. Wealth management must lead the industry and digitization will help us to achieve the goal of no work -- digitization or no work. We're going -- our goal is to be #1, safe, high-efficient and value creation as well as a smart bank.

Many investors join us through the online live streaming platform. Now we will give the opportunity to them. We have received a question from Tokio Marine. The question is as follows. How is the business performance of CITIC Bank in 2022? What's your outlook for business performance in 2023? How do you look at the changes of asset quality of CITIC Bank in 2023? As for Huarong, it's been 1 year since CITIC Group injected capital to Huarong. How do you look at the business performance of Huarong since the year? Mr. Fang will take the question.

Thank you very much for your interest in CITIC Bank. And I'd like to thank Mr. Xi for mentioning the effort by the group to support CITIC Bank. It's very strong endorsement for the bank, and it's also incentivized CITIC Bank to make better contribution. CITIC Bank is one of the most important subsidiaries of CITIC Limited. Last Friday, we held results announcement conference in both Mainland China and Hong Kong, answering questions from investors and analysts. So briefly, to your question, I'd like to, first of all, talk about our business performance in 2022. There are 3 points: first, stable and robust profit growth. Last year, the net profit was RMB 62.1 billion, up 11.6% year-on-year. Making us one of the best-performing listed banks. But if you look at our provision coverage ratio, then we are quite strong because the peer banks have reduced provisions coverage ratio by large margin, but our provision coverage ratio is up by a large margin of 21 percentage points. So the robustness and talking about the stability, last year, there were a 2-digit growth, and we hope that we can sustain that level. Last year. I'd like to say the business performance is reflected on our balance sheet, but there are something that you couldn't see from that. CITIC Bank has ripped off its own historical legacy burden. That means the historic burden created before 2019, meaning the non-performing loan that were created and was a higher amount than other banks, but we have said goodbye to this legacy burdens. We have disposed of the non-performing assets, and we have mitigated existing risks. The NPL ratio is at 1.27%, down 1.2% year-on-year. And the non-performing loan balance and ratio have declined for 2 consecutive years. Our effort has been recognized by the market. Some non-performing assets are still on the balance sheet. But we have categorized them in an accurate way in order to deduct the impairment. We have a more and more healthy balance sheet. Thanks to the disposal of non-performing loans. And there are many other indicators. For example, credit asset is on the rise, now with higher interest rates. This is a more higher uncertainty. For example, corporate loans and retail loans are in a 50-50 split. Retail ones have a higher interest rate by 1 basis points than retail loans. The main locations of our business are in Beijing, Shanghai, Guangzhou, Shenzhen, Pearl River Delta and Yangtze River Delta. We have lost business from other lower-tier cities. We have improved the concentration level of key accounts. Last year, we controlled the cost of liability. Cost liability was down 7% more than other peers and our NIM is 5% less and they declined than other peer banks. The diversified business brings stability. Well, that's to respond to your question about the business performance in 2022. With regard to 2023 performance, we will continue to face with complex situation. We're not sure if the recovery is strong or not. We're not sure if the real estate market will sustain its recovery. And you are also concerned about the risks surrounding vitalization business. And this well has have a huge impact on future business. The market is interested in the NIM issue and the added value of assets. I think in 2023, NIM will continue to decline in 2023, but we are faced with pressure in operating revenue. However, we are going to strengthen our cost control to make sure that we are doing better than peer banks. Generally, I am confident for 2023 performance for 3 reasons. Number one, China's economy will improve in general. Second, CITIC Bank is in a very important transitional period. Our confidence comes from our own progress and also it comes from our capabilities, which we built in the last few years. And thirdly, our confidence comes from the support of the group as Mr. Xi emphasized. Thirdly, our confidence comes from the fact that we have disposed of historical bad loans, so we can move forward with light asset. In the past, NPL was eating into our profit, but now we can have better asset growth and less provision. So in 2023, we will need to work in a more stable and faster manner, and we will stabilize NIM and quality, and we will expand expenses from middle office income and we will achieve higher efficiency and quality. So we can achieve sustained growth. You've also asked about asset quality. Haven't you? Yes. If I can define where we are, simply put, CITIC Bank has already finished the period where we had high risk, and we have improved asset quality. We have higher capabilities to mitigate risks and we have an established risk resistance system, which can support our long-term development. As I said, in 2022, the NPL ratio was down 1 point -- 0.12%, and question loans was down by 0.2% and our coverage ratio is up by 21 percentage points. So many indicators have made historical high since 2014. For example, NPL ratio, provision coverage ratio, and they have been in their best condition since 2014. And the changes are much better than other peer banks. In 2023, we believe, we will have stable and robust asset which delivers good quality. I think the economic recovery will offer some confidence. For example, in 2022, the new NPL ratio was 1.5%, down by 1.19%, the best since 2024. Overdue loans ratio, 0.62%. Overdue 90 days and 60 days, the proportions have been standing under a good level. And the intra discount rate is 2.26% and 29.38% for attention level loans, which have improved, and our current ratio, as I said, has improved as well. Thirdly, we have built a better risk management system. We need to be more aware of the immediacy of profit and long-term effect of risks. So we cannot compromise our risk management. We need to be more determined in controlling risks. So we have built capabilities with better defense system. Given all these factors, stabilizing quality is one of the 4 major areas in 2023. So in 2023, we will achieve more stable and better asset quality.

Mr. Zhengjun is going to take on the question on Huarong.

Thank you very much for your interest in Huarong. First of all, I would like to say that CITIC Limited is the main investor, not CITIC Holdings. The performance of Huarong is not going to have a direct bearing on the performance of [indiscernible] Holdings. We look at the overall strategy, and we focus on the medium and longer-term potential as well as its specific is unique value in growing against the grain. 2022 is a starting point for Huarong. Our guiding principle is to focus on development and efficiency. Last year, there were many challenges. We have some periodical or rather transient reduction of our revenues as well as NPL credit assets. For instance, the credit impairment loss provision has increased. However, the overall performance development has been stabilized compared with the second year. We have reduced loss by 101 -- sorry, HKD 10.1 billion. We have about 9 months covered last year. The second half has performed better than the first half. So the fundamentals were improving positively. We have sped up shrinking the balance sheet and completed the transfer of equity of 4 financial subsidiaries. Total assets has gone down to HKD 1,000 billion. Second, we tried to diffuse risks. We tried to pinpoint the -- we had a general review basically of our risks in order to have a take stock of the quality of our assets. Second, we have also sped up the transition of our core business. The scale of main business' non-performing assets has gone up to 69%. And the substantial restructuring business, as a percentage of the newly invested business has reached 79%. Fourth, we have sped up internal reform by optimizing the organizational structure and regularizing the personnel system and incentive mechanisms. Fifth, we have optimized our financing structure. And liability structure, there was no default of security as by the end of the year. Six, we have collaborated with other business sections of CITIC Limited in developing new business models. When we look into the future, we certainly hope that with the constant efforts of the company and also of the group, we could become the fast track player in the group. Some of the subsidiaries of the company will also explore such development opportunities. We're going to continue to optimize our management and continue to reform and build up our teams. And we hope that within 3 years, we will have considerable achievements and in 5th year, we'll be the leader in the industry.

In the interest of time, we would now take the very last question. Thank you, management, for the opportunity from [indiscernible] Securities. I have 1 question. Mr. Xi mentioned that CITIC Limited has 200 million customers with higher disposable income among Chinese population. Wealth Management business has a huge potential to unlock. How does CITIC Financial Holdings use its licenses, including banking, securities, trust and life insurance? To give full play to their function as a wealth management branch, any specific measures? Thank you.

Thank you for the question. I think according to a report by Mackenzie last year, the wealth management market in China is RMB 250 trillion, only second to the U.S. It's estimated that in 10 years, meaning by 2033, the size will reach RMB 500 trillion -- RMB 570 trillion. I think there is indeed great potential. CITIC Financial Holdings was established on 16th March last year. So today marks its 1-year anniversary. I believe in risk management and asset management, we've done some work. And at the same time, we are committed to deepening the wealth management market by our subsidiaries. CITIC Financial Holdings has 4 licenses, including bank securities, future funding funds, AMC and financial leasing. There are 26 companies in total. Last year, the asset under management was RMB 6.6 trillion. As Mr. Xi said, it served 200 million individual customers. Even before our Financial Holdings was established, we started to build a digital financial platform. It features a sharing platform and a wealth management platform as well as an intelligent management system. Wealth Management business has been manifested in a so called Wealth Management Square, which is a mobile online app. And it uses a shared page, which links with 8 financial institution under the big umbrella of CITIC Limited, there are 8 of them. So customers can be mutually recognized, and 1 individual customer can get access to all the CITIC platforms with 1 access, so we can offer full scale of products to individual customers, especially the long-tail customers. And at the same time, we can offer very convenient online services, which are personalized and CITIC Square is an open ecosystem. It's not only available to the subsidiaries and at the same time, it's also available to the top wealth management institutions in this industry. As you know, on 16th March, we held the first conference of wealth managers in Suzhou and it saw participants from 26 public funds, meaning 60% or more of AUM in China. So we discussed with this people together the wealth management market outlook. And last year, we selected some goods from a market and in only half a year, the revenue was RMB 35 billion, and we received a very good feedback. CITIC Financial Holdings does not only serve individual customers, but also corporate wealth. We have established a 1 plus 3 plus 5 system. 1 means wealth management committee; and 3 means, 3 subcommittees; and 5 means that we set up 5 workshops for different lines of work. We have formed a CITIC fleet, so to speak. Last year, in IPO bond underwriting, public funds, REITs, we have achieved the top position in the market in 3 main businesses. And we have led to a 16% increase in the IPO business of CITIC Bank reaching 65%. So we have seen a 32% increase in the sponsored business in IPO. And we have seen an 8% increase in other sponsored business. And the coverage ratio for high-end customers in bond issuance is 55% ranking the first in the market. And we have reached 2 trillion in core financing projects, a 28% year-on-year increase. And we have also established the system featuring specialized high-tech companies and their proportions in our business portfolio is up by 19%, reaching 48% and credit facilities have increased by 18% to this tech companies. As Mr. Xi said, the wealth management business has reached a level of RMB 22 trillion. CITIC Financial Holdings is building itself into a global or financial institution that offers comprehensive financial services. Wealth management will, for sure, become the core competitiveness of CITIC Financial Holdings and wealth management. Will for sure, become the inevitable path towards light asset and high-quality management. We are capable of and we are confident in the development of wealth management business in China and create the business for Chinese people. Thank you.

Due to the interest of time, we will wrap up the results announcement conference here. Thank you.