22H1 net profit fell 83% compared with the same period last year, and dividend payout rate increased to 60%.
22H1's revenue was HK $1.09 billion (the same below), down 56% from the same period last year, while the profit attributable to shareholders plunged 83% to 161 million yuan, down 83% from the same period last year, and increased slightly by 3% from the previous year, mainly due to the overall market downturn, the decline in main business income and the profit and loss of trading investment income to 287 million yuan. Although profits have hit a new low in recent years, profits have been slightly better than those of their peers despite a 27 per cent drop in Hong Kong stock trading volume in the first half of the year and a 91 per cent year-on-year drop in IPO financing. The company pays a special dividend to 60%, with a total dividend of 0.04 yuan per share.
The main business income weakened across the board, cross-border earnings were exchanged into new bright spots, affected by the overall macro and epidemic situation, and the company's main business income weakened across the board, of which fee and commission income decreased by 54% to 451 million yuan. the main reason is that brokerage and corporate financing underwriting fees have declined by 43% and 69%. Interest income fell 27% to 925 million yuan compared with the same period last year, mainly due to lower income from underwriting and issuance of stock bonds and deepening default risk of internal house dollar bonds, and the company reduced its position in market-making bonds; income from trading and investment turned to a loss of 287 million yuan, of which the investment division lost 208 million yuan, mainly due to the reduction of high-risk Chinese dollar debt positions. Chinese securities firms in Hong Kong are facing a more challenging business environment.
The size of financial products held by the company's H1 valet surged 39% to 43.36 billion yuan, of which interest income from financial products increased 16% year-on-year to 199 million yuan, mainly due to a sharp increase in business demand such as cross-border income swaps. Parent company Guotai Junan (2611 HK) is one of eight primary dealers in over-the-counter options trading in the mainland. Management said that it has promoted integrated operation with the parent company and will rely on the resources of the parent group to expand the scale of cross-border derivatives business in the future. We believe that cross-border over-the-counter derivatives and other customer demand business is expected to become the company's new business highlights.
Effective control of financing costs and reduced exposure to high-risk assets
The total cost of the company was 919 million yuan, down 32% from the same period last year, mainly due to the improvement of financing costs and impairment provisions compared with the same period last year, of which financing costs decreased by 43% to 211 million yuan compared with the same period last year. mainly due to the control of capital costs while reducing exposure to high-risk assets led to the corresponding decline in financing scale.
The provision for impairment of 1H22 was reversed to HK $2.7 million during the period, highlighting the strengthening of risk control in margin lending. Since the beginning of the 21st century, the company has begun to reduce its exposure to risky assets, and data provided by the company show that value at risk (VAR) has fallen by nearly 90 per cent.
Total assets rose 5 per cent to 111.5 billion yuan during the asset period, mainly due to an increase in financial products held by valets. Management said that at present, the company's actual leverage is only 3.34 times, which is already at a low level. Driven by customer demand, the company will not rule out table expansion in the future, focusing mainly on the financing needs of high-rated counterparties and institutional clients. and to increase the fee spread and spread business income.
Downgrade to "overweight" rating with a target price of HK $0.98
The foundation for the transformation of the company's wealth management has been consolidated, the income structure has become more diversified and anti-cyclical has been strengthened, and we are optimistic about the cross-border business of over-the-counter derivatives, but in the face of the external environment such as the Fed's interest rate hike cycle, weaker global economic growth and sluggish Hong Kong stocks, we have lowered the company's net profit in 2022 to 314 million yuan, and reduced the company's 22-24e EPS to 0.03 EPS 0.07 2022EPB, with a target price of 0.98 yuan, corresponding to 0.64X 2022EPB.
Risk tips: (1) violent fluctuations in the financial market lead to lower-than-expected investment returns; (2) the market remains in the doldrums
