Event: Zheshang Securities announced its report for the first quarter of 2023. In 23Q1, the company achieved revenue of 4.931 billion yuan, +57.37% year on year, and achieved net profit of 488 million yuan, +50.92% year on year, weighted average ROE of 1.85%, an increase of 0.50 percentage points over the previous year. Basic earnings per share were 0.13 yuan, +62.50% year on year.
Comment:
Proprietary businesses have bottomed out, and investment income contributed to increased profits. In 2022, due to the downturn in the market economy, the company's proprietary business revenue fell sharply to 685 million yuan, a year-on-year decrease of 62.79% compared to 2021. After entering 2023, along with the improvement in capital market conditions, the company's self-operated business bottomed out. In 23Q1, the company achieved self-operated business revenue of 603 million yuan, a significant improvement from 22Q1's loss of 20 million yuan. Among them, investment income was 468 million yuan, an increase of 214.09% over the previous year, contributing to the main increase in net profit for the period. The scale of self-employment expanded to 48,954 billion yuan, an increase of 6.84% over the beginning of the year.
The investment banking business performed brilliantly, and its location and resource advantages were exploited. In 23Q1, the company's investment banking business achieved revenue of 232 million yuan, an increase of 88.62% over the previous year. As the lead underwriter, the company sponsored Taotao Auto, a local company in Zhejiang, to be listed on the Shenzhen Stock Exchange's GEM. The business plan is to raise 600 million dollars, and the actual capital is 2,008 million dollars. At the same time, the company counseled Baishen Pharmaceutical, Mingtai Co., Ltd. and Avender to complete pre-disclosure, and service companies were all concentrated in East China. In addition, the company's refinancing underwriting scale was 825 million yuan, down from 1,485 million yuan in 22Q1. Bonds underwrote 36.279 billion yuan, an increase of 152.01% over the previous year, and the market share rose 0.8 pct to 1.4%. We believe that with the improvement of the economy and the implementation of a comprehensive registration system, the company will make full use of its location and resource advantages to further develop the investment banking business.
The decline in brokerage business was mainly dragged down by the market. In 23Q1, the company achieved brokerage revenue of 428 million yuan, -17.7% year on year. The decline in brokerage revenue was mainly due to a 12.54% decline in the average daily stock trading volume in the market in the first quarter compared to the same ratio.
The scale of assets has expanded, and the ambition to grow bigger and stronger is obvious. In 23Q1, the company's assets increased to 15.852 billion yuan, +10.14% compared to the beginning of the year. The company announced an additional 8 billion yuan plan on January 18, of which it is expected that 4 billion yuan will be invested in investment and trading business and 2.5 billion yuan in capital brokerage business. The company participated in the Minsheng Securities equity auction on March 16. Although it was not successful, it shows that the company's expansion intentions are obvious, and the ambition to grow bigger and stronger is obvious.
Profit forecasting and investment ratings: Zhejiang has a well-developed economy, rich resources for listed companies and high-net-worth people, and the company's investment banking and wealth management business are well located. Furthermore, the recovery of the market economy is expected to greatly improve the company's own operating and brokerage revenue, and the company's performance is expected to continue to recover in the future. We expect the net profit of 2023-2025E to be 25.62/27.26/2,916 billion yuan respectively. The corresponding 2023-2025 EPE will be 15.03x/14.13x/13.20x, maintaining the “buy” rating.
Risk factors: Fluctuations in the securities market caused profit fluctuations in proprietary businesses; market recovery fell short of expectations; business expansion fell short of expectations.