Horizon CD, a leading asset-light model equipment operator, is expected to report strong earnings for 2023, with an estimated core net profit of RMB1 billion, marking a 20% year-over-year (YoY) increase. This robust performance is attributed to the company's strategic shift towards an asset-light model, which led to a significant reduction in capital expenditure (capex) to approximately RMB1 billion for 2023, down from earlier forecasts of over RMB4 billion. Despite trimming its earnings forecast by 3% in 2024 and 12% in 2025 due to lower capex assumptions, the company is anticipated to experience a surge in free cash flow, potentially reducing the net debt-to-equity ratio to 106% by the end of 2025 from 159% at the end of June 2023.
Overseas expansion is identified as a key growth driver, with plans to establish 20 service outlets by 2024, up from five in 2023. This initiative is expected to capitalize on the higher pricing available in international markets compared to China. The distribution of Horizon's shares by Far East Horizon on January 16 could also provide a boost to trading volume and valuation.
The target price was revised upwards to HK$5.2 from HK$4.8, based on a 13x P/E ratio, aligning with Huatie's two-year average valuation. This adjustment reflects the transition to a more asset-light business model, reduced balance sheet risk, and improved liquidity.
Horizon CD is poised to add 30-50,000 units to its fleet in 2024, primarily through re-renting, further fueling its growth trajectory. With a focus on expanding its overseas presence and optimizing its operational efficiency, the company is well-positioned for continued success in the years ahead.
