Key points of investment
Fangzheng Securities released its 2022 report: Operating income and net profit attributable to the parent were 77.77 billion yuan and 2,148 billion yuan respectively during the reporting period, respectively -9.8% and +17.9% year-on-year; the weighted average ROE was +0.59pct to 5.09% year-on-year; operating leverage increased 3.44 times after excluding customer capital, an increase of 3.4% over the beginning of the year.
The company's performance bucked the trend, and the capital and fee businesses were resilient. On the revenue side, in 2022, the company achieved revenue of 47.48 billion yuan and 2,793 billion yuan respectively, compared to -16.6% and -1.0% from the same period last year. The company's charging business was basically stable, and the capital business showed strong resilience; on the expenditure side, the management expense ratio increased slightly by 4.7 pct to 68.2% year on year, and credit+other impairment losses decreased 305 million yuan to 170 million yuan year on year; maintaining resilience compounded by narrowing the scale of impairment, jointly driving performance release.
The leading position of the brokerage business is stable, and revenue from the investment banking business increased year-on-year. In terms of fee-related businesses, net income from brokerage, investment banks and asset management was $36.00, 533, and $235 million respectively, compared to -23.4%, +21.4%, and -8.9%, respectively. The average daily stock turnover of Shanghai and Shenzhen in 2022 was 925.61 billion yuan, a year-on-year decrease of 12.6%. The decline in market trading activity affected the company's brokerage business revenue. At the same time, when Xinda Fund was discouraged, the company's consignment revenue fell 47.9% year-on-year to 235 million yuan, accounting for 3.1pct to 6.5% of the brokerage business. However, the company's brokerage business has a solid foundation. In 2022, nearly 1.6 million new customers were added, with a market share of 6.66%. By the end of 2022, the total number of corporate clients had exceeded 14.83 million, ranking eighth in the industry.
The year-on-year increase in investment bank business revenue is mainly due to a sharp increase in the scale of IPO financing. The company's IPO financing scale in 2022 was 4.358 billion. As of February 28, 2023, the company's project reserve had 3 orders, which is expected to bring about an increase in performance under the full registration system. The company's asset management business structure was further optimized. In 2022, the company's pooled, targeted, and special asset management was +40.5%, -26.6%, -31.3% to 245.2, 429.0, and 4.17 billion yuan; the management scale of its subsidiary Fangzhengfubang's public fund increased 10.26% year on year to 49.985 billion yuan.
The fixed income business is the main direction of use, supporting positive growth in investment income. In terms of capital operations, net interest income and investment business income were 1,767 and 1,026 billion yuan respectively, -14.3% and +35.2% year-on-year respectively. Among them, the decline in net interest income was due to a reduction in the scale of stock pledges, which led to a 95.9% year-on-year decline in net income from the purchase and resale of financial assets to 0.07 billion yuan. Under market fluctuations, the company's investment business revenue bucked the trend, mainly contributed by investment income from bonds and derivatives assets. In 2022, the size of financial assets increased +13.4% year on year to 80.792 billion yuan, of which bond assets increased +8.3% year on year to 62,796 billion yuan, accounting for 77.7% of the size of financial assets, and derivative financial assets increased 7 times year over year to 171 million yuan.
The company has completed equity changes. As various businesses return to normal, the company is expected to achieve a recovery in ROE levels with the unique advantages of brokerage business, driving the company's profits into an upward channel. We expect the company's net profit to be 2,389 million yuan and 2,713 billion yuan in 2023-2024. The closing price on March 24, 2023 corresponds to 1.28 and 1.21 times PB respectively. It was covered for the first time, giving it an “increase in holdings” rating.
Risk warning: the risk of large fluctuations in the capital market, the risk of macroeconomic downturn, the risk that the market share increase falls short of expectations, and the risk that the promotion of new business falls short of expectations.