Incident: CITIC Construction Investment announced its 1Q23 earnings report, exceeding expectations. Revenue for the reporting period was 6.70 billion yuan, YOY +5.8% (18% CAGR in 2 years), QOQ +38%; the net profit of the mother was 2.43 billion yuan, the highest value in the same period in history, YOY +58% (19% CAGR in 2 years) and QOQ +127%.

The performance exceeded expectations, and the profit value of 1Q23 was the highest in the same period (first quarter) in history. According to the performance report, CITIC Construction Investment achieved net profit of 2.43 billion yuan/yoy+58% /qoq+127% in 1Q23, the highest value for the same period in history; profit exceeded expectations (the previous quarterly report predicted a net profit of 1.86 billion yuan for 1Q23). Net assets at the end of the period were 95.8 billion yuan/qoq+2.7%, 1Q23 unannualized weighted ROE 3.15% /yoy+ 1.05pct. The performance exceeded expectations mainly due to the restoration of proprietary stock management, follow-up investment and direct investment businesses under market recovery, which led to a significant improvement in the return on investment in 1Q23 transactions over the same period last year.

1Q23 Market operating indicators and company conditions: 1) The year-on-year decline in market trading activity dragged down net brokerage and interest income: On the market side, the average daily stock base turnover of the 1Q23 market was 992.4 billion/yoy 9.2% /qoq+3.4%, with an average daily balance of 1571.3 billion /yoy 9.6% /qoq+0.7%; the company's 1Q23 brokerage revenue is expected to be yoy -10%, net interest income yoy -10%. 2) The investment banking business position was consolidated, and the IPO market share was over 17%: according to statistics from the issuance date, the IPO size of the 1Q23 market was 96.2 billion/yoy 28% /qoq+12%, and the refinancing scale was 192.2 billion /yoy+32% /qoq-33%; the company's sub-underwriting scale/year-on-year/market share was as follows: IPOs of 16.5 billion /yoy +64% /market share of the company's main underwriting was 706 billion/ YOY -22% /market share is 8.5%.

3) Significant improvements in investment business: 1Q23, the Shanghai and Shenzhen 300, Science and Technology Innovation 50, and GEM indices rose 4.6%, 12.7%, and 2.2% respectively (1Q22 fell 14.5%, 22.0%, and 20.0%), driving the recovery of the company's own stock management, follow-up investment and direct investment business.

1Q22 revenue disaggregation: CITIC Construction Investment 1Q22 Securities had main revenue of 4.60 billion yuan, and non-main revenue of commodity trade and other non-main revenue was 1.73 billion (gross margin of the bulk trading business in 2022 was only 0.05%). The main business revenue structure of 1Q22 Securities is as follows: brokerage revenue of 1.57 billion yuan/34%, investment bank revenue of 1.59 billion/35%, asset management revenue of 170 million/3.6%, other fee revenue (fund investment, etc.) 190 million/4.2%; net interest of 3.4 million/7.3%, net investment (including exchange gains and losses) of 750 million/16.4%. Due to large market fluctuations in 2022, the annualized investment returns of CITIC Construction Investment 1Q-4Q22 were 1.44%, 4.41%, 2.48%, and 0.36% respectively, and the investment business dragged down 1Q22 performance.

Business revenue forecast for 1Q23: The main revenue of CITIC Construction Investment 1Q23E Securities is expected to be 4.97 billion /yoy+8.0 percent, with investment revenue doubling year-on-year; revenue forecasts for each business line are as follows: brokerage revenue of 1.41 billion /yoy 10%, investment bank revenue of 1.35 billion /yoy 15%, asset management revenue of 190 million /yoy+15%, other fees 210 million /yoy+10%, net interest (including exchange gain and loss) 15.01 billion /yoy+ 100%; then the main revenue structure of 1Q23E securities is as follows: brokerage 28%, investment banks 27%, asset management 4%, other fees 4%, net interest 6%, and net investment 30%.

Investment analysis opinion: Maintain CITIC Construction Investment's holdings increase rating and maintain profit forecasts. Considering that the company's rapid performance report for the first quarter exceeded expectations, we raised the 23E investment return assumption; at the same time, the company announced on April 21 that it plans to set up a special fund to pay advance compensation for the amethyst storage incident, and raised 23E non-operating expenses based on this; in the end, the 23E-25E profit forecast remained unchanged. The net profit of CITIC Construction Investment 23-25E is expected to be 98.0, 114.4, and 13.46 billion yuan, respectively +30.5%, +16.8%, and +17.7% year-on-year. The current closing price corresponds to the dynamic PE of 23-25, 18 times, 15 times, and the dynamic PB of 23 times 2.23 times.

Risk warning: The company plans to set up a special fund to pay advance compensation for the Amethyst Storage Incident. The progress of subsequent claims against issuers is still uncertain; the market has declined sharply.