Incidents:
Recently, Guangfa Securities released its 2016 three-quarter report. The company achieved operating income of 15.2 billion yuan and net profit attributable to shareholders of the parent company of 6.185 billion yuan, down 42.35% and 40.45% respectively from the same period last year. Diluted earnings per share were 0.81 yuan, a year-on-year decrease of 46.36%.
Investment points:
Net profit returned to the mother fell 40% year on year and improved month on month. Although the performance of Guangfa Securities declined 40% year on year in the first three quarters, there was a significant improvement from the 52% decline in the first half of the year, and the decline was small among comprehensive brokerage firms. At the same time, due to the low base effect in the third quarter of last year, it is expected that there will still be plenty of room for improvement in the fourth quarter. Furthermore, judging from Gimu's comprehensive income, there was a 53% year-on-year decline in the first three quarters, and a significant recovery from the 77% decline at the end of the second quarter. By business, net revenue from investment banking business increased 82% year on year, and net revenue from asset management business increased 30% year on year. Brokerage business, capital intermediation business, and proprietary business are greatly affected by fluctuations in the secondary market, which is dragging down performance. Sorting out industry logic: The securities industry is greatly affected by fluctuations in the securities market, and valuations have been drastically adjusted. As the market stabilizes, performance is expected to recover, which in turn will drive valuation repair; financial reforms are advancing in depth, and the rise of direct financing is a major trend. The primary market is expected to expand, the secondary market is expected to recover, the asset management business is developing greatly, and the prospects for the industry are promising.
Reason for recommendation 1: The relatively balanced development of the business structure, and the business synergy brought about by comprehensive service capabilities is expected to promote the strength of strong business people. The company is the only non-state-controlled securities company among the top ten brokerage firms in China, and has no controlling shareholders. The company is positioned as a comprehensive capital market service provider that focuses on high-quality small and medium-sized enterprises and wealthy people in China and has industry-leading innovation capabilities. The company has a high degree of marketization, a clear positioning, and various businesses rank high in the industry. In an environment where the market requires more and more comprehensive service capabilities, the strong are always strong.
Reason for recommendation 2: Industry-leading technology finance model. The company was the first in the industry to launch a robotic investment advisory system to meet the wealth management needs of small and medium-sized investors, and applied for a patent. Information technology has changed from being mainly outsourced in the past to core technology being mainly developed independently, with a team of 75 Internet technical talents. The advantages of technology finance are expected to play an important role in the transformation of brokerage business and enhance the market competitiveness of brokerage business.
Investment suggestions: EPS is expected to be 1.14, 1.33, and 1.31 yuan/share in 2016-2018, respectively. Based on the company's comprehensive financial service capabilities and unique advantages in wealth management transformation, we are optimistic about the company's future development and give it a “buy” rating. The target price for six months is 22.81 yuan/share.
Risk Reminder: Business risks and performance uncertainty risks caused by downgrading classification evaluation levels.