Huaxin Securities, a wholly-owned subsidiary, is the core source of income and profit of Huaxin shares. In 2021, Huaxin Securities accounted for 84.9% and 106.5% of income and profit respectively. The comprehensive strength of Huaxin Securities is about 60 in the securities industry.

To deepen the binding with large-scale high-frequency trading customers and create a large business department is an important feature of Huaxin Securities.

In the first half of 2022, 11 business departments ranked among the top 100 on the list, and the number of business departments on the list ranked first in the industry.

Ranked in the middle of the industry, financial science and technology innovation to create industry competitiveness. Huaxin Securities, a wholly-owned subsidiary, is the core source of income and profit of Huaxin shares. In 2021, Huaxin Securities accounted for 84.9% and 106.5% of income and profit respectively. The comprehensive strength of Huaxin Securities ranks about 60 in the securities industry, ranking in the middle reaches of the industry. Huaxin Securities adheres to the business strategy of "financial technology leading business development". In 2021, the proportion of information technology input revenue ranked second in the industry. Huaxin and Huatai are also the only securities companies in the industry that have won the "Securities Company Financial Technology Award" for the second year in a row. Financial technology helps customer development, comprehensively landing financial technology products such as "N horizon" high simulation trading platform characterized by multi-market real offer simulation, opening up large-scale trading customer market, and empowering business lines internally to provide customers with financial and financial business solutions based on financial technology product lines.

Brokerage business: the income of securities brokers is increasing year by year, and the number of business departments in the top 100 ranks first in the industry. In terms of revenue, the net income and proportion of securities brokerage business have increased year by year in the past three years, which is the company's largest source of net income. In 2021, the net income of handling fees reached 791 million yuan, an increase of 41.65% over the same period last year. Of this total, the net income of agents buying and selling securities (including seat rent) reached 779 million yuan, an increase of 43.63% over the same period last year. In terms of network layout, Huaxin Securities, on the one hand, steadily promotes the process of network coverage, focusing on the strategic layout of East China and the three major economic circles of the Yangtze River Delta, Pearl River Delta and Bohai Rim; on the other hand, it is bound with large-scale high-frequency trading customers to create a large business department. In the first half of 2022, a total of 11 business departments are among the top 100 business departments on the list, and the number of business departments on the list ranks first in the industry.

Investment banking & asset management: a rising star, with a substantial increase in revenue. In terms of investment banking, net income reached 73 million yuan in 2021, a substantial increase of 236.50% over the same period last year. After the company was granted the qualification of securities underwriting in 2020, the company was approved as deputy lead underwriter of corporate bonds in 2021 and qualified as a sponsor institution in February 2022. The improvement of the license is expected to promote the investment banking business income to maintain high growth. In terms of asset management business, net income reached 120 million yuan in 2021, an increase of 175.23% over the same period last year. By the end of 2021, the total asset management scale of Huaxin Securities was 44.1 billion yuan, an increase of 99.65% compared with the end of 2020.

Heavy asset business: investment business income has declined significantly, dragging down the company's overall revenue level. In terms of investment business, the net income on investment (including joint ventures) and changes in fair value was 705 million yuan in 2021, down 33.36% from the same period last year, due to a significant decline in the profit and loss of investment income and fair value changes related to the disposal of Morgan Stanley securities equity. In terms of credit business, the balance of financing and financing in 2021 increased by 35.15% compared with the same period last year, realizing interest income of 385 million yuan, an increase of 9.39% over the same period last year, and maintaining a guarantee ratio of 301.86%. The scale and income of stock quality and contractual repurchase continued to shrink, and the proportion of performance guarantee was 142.26%.

Risk factors: a-share turnover has dropped sharply, credit business risk has been exposed, investment losses have occurred, the development of investment banking has been hindered, and the risk of the real estate industry has intensified.

Profit forecast and valuation: we predict that the total operating income of Huaxin shares in 2022-23-24 will be 100 million yuan in 25-27-29, and the net profit attributed to the parent company will be 4.1 billion yuan. We select Huachuang Yangan, No.1 Venture, Caida Securities and Guosheng Financial Holdings as comparable companies with an average valuation of about 1.64 times PB, while Huaxin shares have a current PB of 1.82 times, which is higher than the average value of comparable companies. With the reform of the capital market and the business innovation of the securities industry, the securities industry will move towards concentration, which may adversely affect the valuation of small and medium-sized securities firms. At the same time, the fluctuation of the stock market will inevitably bring the beta effect, which will make the valuation of securities firms fluctuate greatly. In the short term, we expect the company's net profit to grow steadily, and the company has no capital replenishment plan in the near future, so the company's ROE is expected to maintain a high level and support the company's PB valuation; in the long run, the company's PB valuation is expected to be close to the industry average.