Incident: GF Securities achieved total operating revenue of 6.477 billion yuan in the first quarter of 2023, an increase of 35.69% over the previous year; net profit attributable to shareholders of the parent company was 2,157 billion yuan, an increase of 65.58% over the previous year. The weighted average ROE after annualization for a single quarter was 7.48%, up 2.6 percentage points from the previous year; basic earnings per share were 0.27 yuan, an increase of 58.82% over the previous year.

Comment:

Net income from brokerage fees fell 12.52% year-on-year, and the size of consignment stocks and equity funds increased slightly.

The average daily stock trading volume of the 23Q1A share market was 991.7 billion yuan, down 9.2% from the previous year; the financing balance of the two markets was 1.6 trillion yuan, down 4% from the previous year. The popularity of fund issuance declined in the first quarter of '23. 260 new funds were established, with a new issuance share of 25.7 billion shares, down 27.4% and 9% from the previous year, respectively. The 23Q1 company's net brokerage fee revenue fell 12.52% year-on-year to 1,477 million, and increased 0.98% quarterly. We expect it to be mainly due to the year-on-year decline in market turnover and the continued decline in the industry average commission rate. The 23Q1 company's net interest income fell 5.35% year on year to 937 million yuan, mainly due to the increase in interest expenses due to the increase in the scale of short-term financing; interest income increased 6.69% year on year to 3.46 billion yuan, mainly due to monetary capital rising 8% year on year to 127.858 billion yuan. In 23Q1, GF Securities held 83.2 billion yuan of stock and hybrid public funds, an increase of 1.1 billion yuan over the end of '22, and the ranking remained unchanged.

Net income from the investment banking business fell 32.67% year on year, and the transaction amount of the stock business increased 119.93% year on year. In 23Q1, all market credit bonds were issued (corporate bonds+corporate bonds+short finances+winning votes) of 3 trillion yuan, a slight decrease of 0.27% over the previous year; the number of financiers and capital raised in the A-share market was 193 and 355.5 billion yuan respectively, down 4.5% and 15.3% from the previous year, respectively. The company's net income from investment banks declined, with net revenue of 23Q1 falling 32.67% year-on-year to 101 million yuan.

According to Wind data, affected by the normal recovery of stock business, 23Q1A shares (IPO+refinancing+convertible bonds) underwriting capital was 3,588 million yuan. The underwriting amount of the stock business increased 119.93% year-on-year, ranking 12th in market share of 1.59%, an increase of 1.02 pct over the same period last year; in terms of bond underwriting, the total underwriting amount of bonds was 43.188 billion yuan, and the market share was 1.59% ranking 16th.

Investment income increased 2.78 billion yuan over the same period last year, turning a loss into a profit from self-employment. Net investment income (net investment income plus change in fair value) of 23Q1 was 1,718 million yuan, an increase of 2.78 billion yuan over the previous year. At the end of the first quarter of '23, the company's financial investment reached 352,257 billion yuan. According to estimates, the annualized yield of self-employment in 23Q1 was 1.95%, an increase of 3.56 percentage points over the previous year. Looking ahead, we expect securities companies' proprietary earnings to continue to improve in the context of marginal improvements in the equity and bond market. Furthermore, the impact of market shocks is expected to increase hedging demand from institutional investors, which favors the rapid development of the company's valet derivatives business. The derivatives market in the securities industry is currently in a stage of oligopoly competition, and we expect the contribution of valet derivatives to increase further in the future.

Net income from asset management business declined slightly, and fund contributions are expected to continue to increase. In 23Q1, brokerage asset management established 130 new products/7.294 billion shares, down 18.8% and 16.8%, respectively, from the previous year. The net revenue of the company's asset management business in 23Q1 was 2,087 billion yuan, a year-on-year decrease of 10.81%. As of April 30, the non-monetary fund holdings of the company's subsidiaries E-Funda Fund and Guangfa Fund were 1 trillion yuan and 671.5 billion yuan respectively, ranking first and third respectively in the overall market ranking. Taking the data from '22 as an example, the two subsidiaries' shareholding contributed 1.61 billion yuan in profit, accounting for 20.2% of the net profit of the parent company. Looking ahead to '23, with the marginal improvement in the equity market, we expect the performance contributions of the two fund subsidiaries to further increase.

The contribution of fund subsidiaries is expected to increase, maintaining the “increase in holdings” rating of A-shares. The company's various businesses are developing in a balanced manner, and operating efficiency continues to improve. We raised the net profit forecast for 23-24 to 10.53 billion yuan (up 4.6%), 12.098 billion yuan (up 4.9%), and added the 25-year forecast of 13.205 billion yuan, equivalent to the 23-25 EPS of 1.32, 1.59, and 1.73 yuan. The current A-share PE corresponding to stock prices is 11.6X, 9.7X, and 8.9X, respectively. The corresponding PBs are 0.97X, 0.9X and 0.83X, respectively. Considering that the company's incentive system is flexible and the contribution of fund subsidiaries continues to increase, the “increase in holdings” rating of A-shares is maintained.

Risk warning: increased volatility in the A-share market; risk of regulatory compliance in investment banking business.