Legend's 2016 annual report appears to be placid and tranquil, with revenue of RMB307 billion, a slight decrease of 1% year-on-year; net profit attributable to shareholders RMB4.859 billion, up 4% year-on-year. In terms of net profit contribution, the strategic investment segment and the financial investment segment are relatively balanced, contributing RMB2.692 billion and RMB2.901 billion respectively. This is in fact quite consistent with the metaphor by Premier Li Keqiang when he said at the press conferences held by the State Council: Shaolin monks’ somersaults. A company with such a large size cannot turn itself forward like a small company. It must grow like still water that runs deep and far.
If you compare the annual report carefully with 2015, you will find that under its stable overall financial situation, there have been massive changes in multiple sectors, like ducks in that water that underneath the calm surface, their feet are paddling. Compared with last year, the strategic investment business achieved substantial growth, the IT sector turned loss into profit, and the four strategic investment sectors of innovative consumer services, financial services, agriculture and food, and new materials achieved revenue growth of 43%, 75%, 99%, and 156% respectively.
The positive trend of financial indicators and the increasingly clear focus of the business mean that this company, which was somewhat ‘unreadable’, has undergone relatively encouraging changes under the management's efforts over the past year. This change can be of great significance in the capital market, which means that investors have greatly increased their probability of casting a vote of confidence.
The main lineup surfaced
Legend Holdings is a company with a more complex business model. It has both strategic investment and financial investment. In Legend Holdings, it is called ‘two-wheel drive.’ On top of these two wheels are many different industries and investments from angels to VCs and PEs. This will inevitably make it difficult for investors to ‘highlight all the key points’. Of course, Legend’s management will also feel somewhat complicated when it comes to ‘explain the problems’ to investors.
But now we see that Legend's answer to this problem is clearly satisfactory. After a year of exploration by following its overall strategy, in this huge investment holding company, main lineup gradually emerged to the surface. If you read the financial figures carefully, it is not difficult to find that although IT sector is still in a dominant position operating income, however, from the perspective of net profit contribution, IT sector is not only less than half of financial investment but also surpassed by the financial services sector in the strategic investment business. By comparing these changes, we can see that Legend Holdings, as an investment-oriented holding firm, has launched a new lineup in its investment operations. Those strategic focuses put forward by President Zhu Linan at the 2016 results announcement have gradually grown into new business pillars.
The financial services sector has become a leader in the strategic investment segment in 2016. From the perspective of planning, Legend Holdings has raced to control a number of sectors such as banking, insurance, trust, leasing, and Internet finance. Given the scarcity of financial licenses, its quick actions are not surprising, particularly in those financial firms such as Zhengqi Finance, JC Internal Finance & Leasing, and Koala Technology whose operations are featured for industrial finance and technology finance and whose service orientation is to lock in the SMEs and the middle class. At present, the overall business expansion of the financial services sector has shown sufficient width. The capital operation of the invested companies has always been recognized by the market. If its business can go on deepening with innovation, growing into a new pillar industry is also expectable.
The agricultural and food sector, which is also full of activities in capital operations, changed dramatically in 2016, too. With assets such as Funglian being injected into the Joyvio Group, Joyvio Group has been planned to be built into Legend’s platform for agricultural and food holding to provid Chinese consumers with products and services based on the entire industrial chain and global layout, with a purpose of racing to capture the opportunities in consumption upgrades. In the same way, the innovative consumption and services sector that Legend has been focusing on has continued with its layout. After taking stake in Shanghai Neuromedical Center in 2016, Legend has added a new piece to its go board of medical investment.
What deserves more attention from the outside world is that Legend does not set eyes in the home market only. In 2016, Legend started looking at the overseas market and invested ￡110 million in a British insurance company, PIC and 203 million Australian dollars in a seafood giant, K&B Seafood. Legend started international operation long time ago. Now the leading companies that Legend’s strategy focuses on are not only those stronger ones in the domestic market but also those international big players.
Steady and experienced become the management’s collective quality
Having skilled ‘old drivers ‘ like Liu Chuanzhi and Zhu Linan in place, Legend won’t get deviated in the general direction. What they need is nothing more than time. Against the backdrop of economic uncertainties, Legend didn’t throw itself into a mess; instead, it stick to its strategy and move forward steadily. It is the second consecutive year that President Zhu Linan has emphasized the unique two-wheeled business model of strategic investment and financial investment at the results announcements. The two-wheeled business linkage, fund coordination and resource sharing will be the starting point for future implementation.
From the perspective of investment portfolio, while Legend strategically focuses on the three major segments, it also spins off its real estate development business. Whether it is a heavy-asset sector such as new materials, agriculture and food, a heavy-resource, heavy-talent sector such as financial services, or a heavy-channel, heavy-brand sector such as innovative consumption and services, Legend’s management is always able to deepen post-investment management to drive the growth of business fundamentals.
The most critical factor is that the management’s executive power still maintains the same attitude Legend had over 30 years ago when the business started. The energy injected into the company through post-investment management can be truly unchanged. In fact, as the management are grown from real business, each step they make is a solid one. After a number of business cycles, experienced has become a management’s collective quality, and it is precisely such a quality that allows Zhu Linan to have confidence in honoring his commitments of strategic focuses as well as reaffirming that Legend will continue to amplify its capability of value creation.
Value development period may be coming
After the listing, the outside world had a doubt about the company for it being ‘unclear’ or ‘unreadable’. This is because that the two-wheel drive business model is too unique on the one hand, and, of course, Legend computers are too deeply rooted in people's mind on the other hand.
Yet one big merit that the 2016 annual report has is that it successfully enabled the outside world to get a clear picture about Legend Holdings. In addition to Legend-brand computers, now people have begun to know about what is contained in this much larger system: finance, agriculture, and medical... Regarding the direction of strategic investment, The emergence of a number of high-quality, even leading companies has made people to re-label the company: Legend-branded investment.
In particular, it is worth noting that along with the optimization of the investment portfolio and the fermentation of the two-wheel-drive synergy effect, by observing the operational data of a number of companies Legend invested not long ago, such as JC Leasing, Zhengqi Finance and Levima, you can see that Legend, through management and control, is increasing its capability of helping them to achieve positive returns and quickly realize profitability, and the time to turn potential into performance is being shortened.
While the outside world began to re-know Legend, capital markets, especially the A-share market in the Mainland, also began to accept the company. Since the beginning of 2017, Legend has taken multiple actions in the capital market. Lakara Group has submitted the listing application. Joyvio Group has become the control shareholder of A-share GEM-listed Wanfu Biotechnology. Multiple firms from Legend's three major fund investment streams have got listed recently. Liu Chuanzhi, Chairman of Legend, made it clear in his speech that multiple businesses in Legend's strategic investment sector can satisfy the conditions for listing. It will be an important approach for Legend to realize the explication of its investment strategy through splitting-up the invested companies and making them listed in the future.
Needless to say, since the listing, life has not been easy for Legend, and the management has also been under great pressure. However, investment business can’t be done well without enduring loneliness and suffering grievances. As long as the direction is correct and every step is steady, the value development period of its own is already in sight.