A Letter to Shareholders from JD Capital (600053) President
Kunwu Jiuding Capital Co., Ltd. (600053.SH, JD Capital) published its 2016 annual report on April 29, 2017, together with a shareholder letter from Cai Lei, president of the company.
This is the first time the president talks directly to shareholders through a letter. It introduces the company’s performance in 2016, and explains the company’s current business mode, future growth strategy, and managers’ opinions on its development and investment tendency.
Full text of the letter:
2016 is the ninth year since the birth of JD Capital, and the second year since it went public on the A-share market after reorganization. From this year on, the president will talk to our shareholders every year in the form of an open letter attached to the annual report, so as to bring you more knowledge about the company itself as well as the investment industry.
2016 has brought huge returns for our shareholders. After the reorganization in 2015, the company started private equity investment management business (hereinafter referred to as “PE businesses” on top of the previous real estate development business, thus becoming one of the very few listed companies on the A-share market in China to focus on PE business.
In 2016, the company gained a revenue of RMB 1.644 billion, an increase of 46.3% YoY, in which RMB 1.255 billion came from PE business, up by 1350.3% YoY. Net profit was RMB 628 million, a YoY increase of 119%, the highest since it went public.
On an equity base of 433,540,800 by the end of 2016, JD Capital plans to pay a cash dividend of RMB 4.35 (tax included) per 10 shares to all shareholders, a total of RMB 188,590,248.00 (tax included), 30.03% of the net profit belonging to shareholders of the parent company in 2016. This is the highest amount since the company went public. It will not donate shares or convert capital reserve into share capital. The rest distributive profits will be retained for the next year.
As the company exited some investment projects in 2016, it earned huge returns for PE fund clients. By the end of 2016, the company ran a total fund principal of RMB 27.334 billion, exited an RMB 2.771 billion worth of investment projects and recovered RMB 10.372 billion, realizing an investment return of 3.74 times and an IRR of 43.76%. This fully proves the effect of the profit model we established years ago. Also, the good performance of the company mainly comes from the management remuneration we deduct from fund profits at a certain percentage.
In 2016, eight portfolio companies of JD Capital got listed, accounting for 3.5% of the total number of A-share IPO enterprises. The records have secured a leading position in the market for JD Capital.
Good returns aside, we also make provision for bad times. The year 2016 has seen rapid changes in the global landscape. From Brexit to Donald Trump’s election, Black Swan events that affect human history occurred one after another. We believe that accelerated society progress and increased uncertainties are in no sense temporary, but constant in human history.
Facing the new normal where “uncertainties become certain”, our top priority is to secure competitive edges in the market. Surviving in a tough environment which no one can avoid, to win means to do better than one’s competitors.
JD Capital has retained its leading position in the PE sector in China in 2016 as it adjusted organization pattern, strengthened team building, improved incentive mechanism, expanded capital sources, and enhanced post-investment management. Over the past year, JD Capital dominated the top of the rankings of China’s PE firms designed by authoritative research institutes or mass media such as Zero2IPO Research and ChinaVenture Information.
However, amidst the fast-changing environment, aside from enhancing competitive edge on the premise of maintaining strategic stability, we should also adapt to the changes by focusing on the innovation and development breakthroughs, so as to win battles in the future.
Profound changes have taken place in both the real economy and the financial market. For PE, a capital form with industrial and financial features combined, there are also two corresponding reform routes. At this strategic turning point, we decide to strive for excellence in real economy, in seek of long-term success by investing and providing service for outstanding Chinese enterprises.
Over the past a decade, JD Capital has invested in all walks of life and participated in the development of hundreds of excellent entity enterprises. We will continue to focus on large-scale industry, consumption, health care, and other key sectors of real economy to provide systematic services for the development, M&As, and consolidations in Chinese real economy.
We firmly believe in the potential of Chinese market. As we see it, consumption upgrade, technology innovation, industry consolidation, and system reform will inject new momentum into China’s economy. Just as how Buffett made American Story the secret of his decades of investment success, we will also make strategic use of opportunities in China and take Chinese Story as JD Capital’s long-term topic.
With the philosophy of striving for excellence in entity economy, and taking root in China, JD Capital has formed the “consolidation-oriented investment” strategy and system. To be specific, JD Capital takes industry consolidation as its investment mainline, “1+N” consolidation its basic strategy, and potential bellwethers or bellwethers-to-be of market segment (“1” of “1+N”) its investment objects. We propel internal growth of leading companies and at the same time support their constant intra-industry consolidations (“N” of “1+N”) along industrial chains both home and abroad.
JD Capital has invested in a number of successful companies, and studied the success story of all kinds of enterprises. We believe that, the value of companies to society is decided by the value of their products. Quality products, produced on the basis of a company’s competitive advantages, can bring excess return. A universal fundamental formula is concluded thereby: quality products = competitive advantages = excess return. All in all, the essence of outstanding enterprises lies in the consistency of the three aspects.
As a company mainly involved in equity investment, JD Capital has financial services as its product. We effectively connect social capital with entity enterprises by bridging investors and entrepreneurs. We hope we can gather more social capital and then reallocate the capital to entrepreneurs determined to provide quality or even great products.
We reckon that the only key to JD Capital’s long-term success is to obey the above-mentioned fundamental formula. If we realize our goal of facilitating more outstanding or even great enterprises through investment, JD Capital must will become an outstanding or even great enterprise.
President of JD Capital: Cai Lei
April 29, 2017