GF Securities's performance in 2022 is in line with our expectations

The company's revenue in 2022 was -27% year-on-year to 25.1 billion yuan, net profit of -26.9% year-on-year to 7.9 billion yuan, ROAE (company caliber) -3.4ppt to 7.2% year-on-year, and 4Q22 net profit was +22% year-on-year /160% +160% month-on-month to 2.7 billion yuan. The performance was in line with our expectations. The adjusted management fee rate for the whole year was +7.8ppt to 57.4% year on year, and the leverage ratio of own capital at the end of the period was +0.2x/month-on-month +0.1x to 3.99x.

Development trends

Wealth management segment performance and industry convergence. The revenue of the wealth management segment in 2022 was 19% year-on-year to 11.1 billion yuan, accounting for +4ppt to 44%. 1) Brokerage revenue was -20% year-on-year to 6.4 billion yuan, and the stock-based trading market accounted for +0.1ppt to 4.01% year-on-year. The revenue of financial products sold on behalf of consignment financial products was -29% to 800 million yuan, accounting for -1.5ppt to 13%, and the sales volume of corresponding products was -18% to 515.8 billion yuan over the same period last year. At the end of the period, the ownership scale of financial products sold on a consignment basis was +0.8% compared with the same period last year, of which the size of the non-cargo based public offering of consignment was +21% from the same period last year to 94.8 billion yuan.

2) In terms of credit business, the interest income of the two loans reached 5.5 billion yuan year-on-year, the balance of the two loans at the end of the period was -11.7% to 83 billion yuan, and the market share was +0.3ppt to 5.4% year-on-year; interest income from stock pledge was -13% to 660 million yuan year on year, and the stock pledge balance in the table was -25% to 9.7 billion yuan over the same period last year.

The contribution of the public equity business continues to increase, and private equity has been hampered. The revenue of the investment management segment in 2022 was -21.5% year-on-year to 9.9 billion yuan, accounting for +2.6ppt to 40%. 1) GF Asset Management's revenue/profit was -15%/-33% year-on-year to 65/ 130 million yuan, and the management scale was -45% compared to the beginning of the year to 271.2 billion yuan, of which the collective size reached 210.7 billion yuan over the same period last year. 2) In terms of public funds, the profit of Guangfa Fund was -18% to 2.1 billion yuan, the profit of the public non-commodity AUM +2% to 705.3 billion yuan compared to the same period last year; the profit of eFonda Fund was -15% to 3.8 billion yuan, and the public non-commercial AUM was -17% to 1.03 trillion yuan; the total profit contribution of the two (taking into account the shareholding ratio) was +3ppt to 26% year-on-year. 3) In terms of private equity, GF Sindh's profit was -86% year-on-year to 120 million yuan due to market fluctuations.

The OTC derivatives business is developing rapidly; the investment banking business is growing rapidly under a low base. 1) The revenue of the institutional and trading segment in 2022 was -58% to 2.9 billion yuan year-on-year, accounting for -9ppt to 11%. Transactional financial assets at the end of the period were +27% to 157.8 billion yuan, and the corresponding investment yield was -5.1ppt to 0.9% yoy. Among them, bonds (+26% YoY): stocks (+19%): funds (+25% YoY): others = 28%: 16%: 40%: 16%. Furthermore, in 2022, the company's over-the-counter market issued products increased 123% year on year to 405.5 billion yuan, and the market value of products at the end of the period increased 85% year on year to 171.9 billion yuan. 2) The revenue of the investment banking division increased 38% year on year to 600 million yuan, accounting for +1ppt to 2%; the scale of stock and bond underwriting all increased significantly year over year, and the investment banking business recovered somewhat.

Profit forecasting and valuation

We have kept our 2023 profit forecast basically unchanged, and introduced a profit forecast of 12.3 billion yuan for 2024. GF's current A shares correspond to 2023/24e 1.0/1.0x P/B (excluding perpetual bonds). Maintaining an outperforming industry rating and considering that market recovery drives sector valuation recovery, we raised the target price 7% to 19.5 yuan, corresponding to 2023/24e 1.3/1.2x P/B (excluding perpetual debt) and 24% upward space.

risks

Trading volume has shrunk sharply, markets have fluctuated sharply, and regulatory policies are uncertain.