Key points of investment

GF Securities released its 2022 report: Operating income and net profit attributable to the parent were 251.32 and 7.929 billion yuan respectively during the reporting period, which were -26.6% and -26.9%, respectively; the weighted average ROE was -3.44pct to 7.23% year-on-year; operating leverage after excluding customer capital was 3.84 times, up 4.1% from the beginning of the year.

The decline in revenue from capital services dragged down performance, and credit impairment recovered somewhat. On the revenue side, in 2022, the company achieved revenue of 16.363 billion yuan and 6.301 billion yuan from the previous year, respectively, of -12.9% and -48.2% compared to the same period last year. The sharp decline in capital business revenue was mainly due to the decline in profit and loss from changes in investment income and fair value; on the expenditure side, management expenses were -13.5% year-on-year to 13.809 billion yuan, but due to the decline in operating income, the management expense ratio increased 7.8pct to 57.4% year-on-year, and the company's credit impairment losses turned back to 372 million yuan, and stock size pledges turned -25.25% year-on-year to -25.25% At 9.629 billion yuan, asset quality continues to improve.

The public fund business is leading the way, and the investment banking business continues to recover. In terms of fee-related businesses, net income from brokerage, investment banks and asset management was 63.87, 6.10, and 8.939 billion yuan respectively, compared to -19.9%, +41.1%, and -10.1%, respectively. In terms of brokerage business, the company's stock base turnover in 2022 was -6.6% year-on-year to 19.9 trillion yuan, and the market share increased by 0.16pct to 4.0%; financial product sales were -18.28% year-on-year to 515.76 billion yuan. As of 202Q4, the company's non-commodity fund holdings were 94.8 billion yuan, ranking third among brokerage firms. The scale of the company's IPO, refinancing, and bond financing in 2022 was 29.43/154.64/142,076 billion yuan respectively. The scale of equity and bond financing increased 12.9 times and 4.6 times, respectively. As of March 31, 2023, 47 projects were queued for IPOs, and the investment banking business recovered at an accelerated pace. In 2022, the company's pooled /single/special asset management scale was -40.25%/-58.45%/-9.51% to 2106.7/539.3/6.58 billion yuan, deepening the transformation of asset management; the company's Guangfa Fund and eFangda Fund at the end of 2022 were 705.3 billion yuan and 1,0255 billion yuan respectively, ranking third and first in the industry.

Proprietary investment is dragging down performance, and bond derivatives are in the direction of expansion. In terms of capital business, net interest income and investment business income were 41.01 billion yuan and 2,210 billion yuan respectively, -16.8% and -69.5% year-on-year respectively.

The decline in the company's net interest income was mainly due to a decrease in interest income from loans and other debt investments. Investment income decreased by 2.43 billion yuan year on year, and income from changes in fair value decreased 2.59 billion yuan year on year, causing a significant drag on performance. The company's financial assets in 2022 were +28.4% year on year to 302.8 billion yuan, and bond and derivatives positions increased significantly, up 26.2%/368.11% year-on-year respectively to 445.4/2.64 billion yuan. The company actively promoted the direction of its own business to smooth out fluctuations in the cycle.

The company's fee-charging business is highly resilient, and the asset management business has outstanding advantages. With the effective recovery of the investment banking business, future profits are expected to be clearly restored. We adjusted our profit forecast. Net profit for 2023-2024 was 101.96 billion yuan and 11.241 billion yuan, +28.6% and +10.2%, respectively. The closing price on March 31, 2023 corresponds to PB 1.00 and 0.91 times respectively, maintaining the “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.