Maintaining the “increase in holdings” rating, the 2014-16 EPS forecast was raised to 0.16/0.23/0.27 yuan, an increase of 38%/33%/35% over the previous adjustment. The business innovation intensity exceeded previous expectations, and the target price was raised to 9.0 yuan, corresponding to 3.5 times the PB in 2014 (about 2.5 times that of small and medium-sized brokerage firms, with a certain valuation premium given by the private sector). The company's operating revenue/net profit of the first three quarters of 2014 was 874/350 million yuan, an increase of 120%/343% over the previous year, corresponding to EPS of 0.11 yuan, and the annualized ROE was about 11%.
The performance exceeded our previous expectations, and credit transactions and proprietary investments will be the engine for a sharp increase in future performance. (1) The share of capital brokerage business has increased dramatically. The fixed capital of nearly 3.7 billion yuan was mainly invested in credit transactions and proprietary investment businesses. In early October, the scale of credit transactions (including two financing/pledged repurchases, etc.) surged to 4.5 billion yuan, and the scale of self-operated business increased to 2.7 billion yuan. Investment and interest income in the first three quarters accounted for about 17%/29%, while traditional brokerage revenue accounted for less than 25%. (2) The leverage ratio increases, and ROE is expected to rise. The company will issue another 1 billion yuan in bonds. Considering that the company's leverage ratio is only 1.3 times, the lowest among listed brokerage firms, there is plenty of room for further improvement. (3) Investment banking and direct investment businesses have great potential. The company completed 1 IPO project in the previous September, issued 14 bond projects, and still has 3 IPOs under review. The Yungui region is rich in reserve projects. (4) Appropriate cost control. Business management expenses for the first three quarters were 345 million yuan, an increase of only 29% over the previous year, and management efficiency is expected to be maintained.
Private genes are the driving force behind innovation and transformation. The government encourages private capital to participate in financial business. Companies are private brokerage firms other than Guojin Securities and Zhongshan Securities among listed brokerage firms, and are scarce. The company recently obtained the “Shanghai-Hong Kong Stock Connect” license, and its innovative attitude has gradually been recognized by the supervisory authorities. It is expected that the business will be expanded nationwide from the traditional Yungui region. In the future, it is worth looking forward to the company's overseas investment business and expanding internet finance in Southeast Asia.
Core risks: Unfavorable implementation of Internet finance; risk of business transformation.
