In 2022, Shenwan Hongyuan achieved net profit of 2,789 million yuan to its mother, a year-on-year decrease of 70.32%, and its performance lagged behind the industry average. The decline in profits in the institutional services and trading sector was the main reason for the decline in profits. In the future, Shenwan Hongyuan's heavy capital business is expected to benefit from a recovery in the capital market. Active management and transformation of the asset management business will continue to advance. A/H shares will be given 1.00/0.35 times PB in 2023, corresponding to the target price of $4.02/HK$1.61, maintaining the “holding” rating of A/H shares.
Guimu's net profit fell 70.32% year over year, lagging behind the overall performance of the industry. Affected by declining market turnover and fluctuations in the stock and bond market, in 2022, Shenwan Hongyuan achieved operating income of 20.610 billion yuan, a year-on-year decrease of 39.93%; achieved net profit of 2,789 billion yuan, a year-on-year decrease of 70.32%. The year-on-year net profit performance lagged behind the industry average; the basic EPS for the period was 0.11 yuan, down 71.05% from the previous year; the weighted average ROE was 2.93%, down 7.33 percentage points from the previous year.
The personal finance sector contributed 50.9% of operating profit, and institutional services and transaction profits declined markedly. In 2022, the five major sectors of investment banking, principal investment, personal finance, institutional services and transaction and investment management contributed $785 million/$453 million/$1,591 million/265 million/031 million yuan respectively. Personal finance is the company's core business segment, contributing 50.9% of operating profit in 2022. At the growth rate level, affected by market fluctuations, the operating profit of the institutional services and trading sector fell 94.7% year-on-year, which was the main reason for the decline in corporate profits.
Personal finance: The asset scale of custodian clients ranks among the highest in the industry, and the risks of the two finance businesses are manageable. In terms of brokerage business, the company achieved net brokerage revenue of 5.211 billion yuan in 2022, a year-on-year decrease of 20.31%; at the end of 2022, clients' managed assets reached 3.74 trillion yuan, ranking among the top five in the industry. In terms of credit business, the company's financial balance was 59.089 billion yuan, down 24.6% from the previous year, and the guarantee ratio was 255.07%, down 30.22 percentage points from the end of 2021; the financing balance of the stock pledge business funded with own funds was 4,652 billion yuan, down about 20.83% from 2021. The overall risk of the credit business is manageable.
Institutional services and transactions: Total investment returns have declined sharply, and the Var value of proprietary business is expanding. In 2022, the company's net investment income plus income from changes in fair value was 5.827 billion yuan, a sharp decline of 47.67% over the previous year. Mainly affected by market fluctuations, investment income from the disposal of financial assets declined sharply. In terms of scale, the company's financial investment at the end of 2022 was 339.677 billion yuan, an increase of 7.0% over the previous year; derivative financial assets were 8.197 billion yuan, compared to 2,800 million yuan at the end of 2021, maintaining the expansion trend in a volatile environment. In terms of risk, the company's proprietary investment business VaR was 243 million yuan at the end of 2022 and 139 million yuan at the end of 2021. Risk exposure has expanded.
Investment Banking & Asset Management: Investment banks rank in the top ten underwriting scale in the industry, and the asset management business promotes active management transformation. In terms of investment banking business, the equity underwriting scale was 37.684 billion yuan, ranking 8th, up 1 place from the previous year; the bond underwriting scale was 204.547 billion yuan, ranking 7th, up 1 place from the end of the previous year. In terms of asset management, the asset management scale at the end of 2022 was 288.020 billion yuan, +6.30% year on year, of which the active management scale was 189.946 billion yuan, +35.49% year on year.
In terms of public funds, Shenwan Lingxin and Wells Fargo achieved net profit of 134 million/2,066 million yuan respectively in 2022; considering the shareholding ratio, the two funds contributed 3.4% and 20.6% of net profit to the parent, respectively.
Risk factors: A share turnover declined sharply, credit business risks were exposed, investment trading business performance fell short of expectations, overseas business development was limited, and wealth management business development fell short of expectations.
Profit forecasting, valuation and ratings: Considering the impact of multiple factors such as current market trading conditions and the implementation of the full registration system, we predict that Shenwan Hongyuan's 2023/2024/2025 EPS will be 0.26/0.32/0.35 yuan, and BVPS will be 4.02/4.29/4.54 yuan (the original forecast was 2023 EPS of 0.56 yuan and BVPS of 4.88 yuan). In the future, Shenwan Hongyuan's heavy capital business is expected to benefit from a recovery in the capital market, and the active management and transformation of the asset management business will continue to advance.
The company's current stock price reflects to a certain extent the impact of the decline in financial performance. According to the 10% PB valuation of A/H shares since 2019, A/H shares were given 1.00/0.35 times PB in 2023, corresponding to the target price of $4.02/HK$1.61, maintaining the “holding” rating of A/H shares.