1H19 performance is slightly lower than we expected.
The company announced 1H19 results: total operating income from + 33% to 1.16 billion yuan, net profit from + 178% to 290 million yuan, and ROAE from + 1.22ppt to 1.91% during the reporting period, slightly lower than we expected. The company's 2Q19 homing net profit ranges from 91% to 23.13 million yuan compared with the same period last year / month-on-month. The lower-than-expected performance of the company is mainly due to fluctuations in 2Q19 investment income.
Trend of development
The securities business accounts for a high proportion of self-operation and the performance fluctuates greatly. The subsidiary Huachuang Securities 1H19 has a revenue of 1.2 billion yuan (the caliber of the securities industry report) and a net profit of 258 million yuan. According to the caliber of the consolidated statement of the company: 1) proprietary business: the company's 1H19 investment income is from + 91% to 640 million yuan, accounting for + 17ppt to 55% of the total revenue compared with the same period last year. The proprietary business is mainly fixed income business, and the scale of investment assets at the end of the reporting period is + 2% to 17.9 billion yuan compared with the beginning of the year, of which bonds account for 86%. The bond delivery volume of the company's 1H19 ranks fourth among securities firms, up 5 places from the beginning of the year, and obtained the qualification of trial market maker and CRMW business in the interbank bond market. 2) Brokerage business: the company's 1H19 brokerage business income is + 42% to 300 million yuan compared with the same period last year, mainly due to the enlargement of 1H19 market trading volume (stock-based ADT + 29% to 625 billion yuan). 3) Investment banking business: the company's 1H19 investment banking revenue ranges from + 163% to 94.28 million yuan compared with the same period last year. 4) Capital management business: the company's 1H19 asset management income is-38% to 59.5 million yuan compared with the same period last year, and the scale of asset management is-10% to 138.4 billion yuan higher than at the beginning of the year. 5) net interest income: the company's 1H19 interest income is 82.86 million yuan, of which the two financial institutions' interest income is from + 30% to 81.6 million yuan compared with the same period last year, and the stock pledge repurchase interest income is from + 6% to 220 million yuan compared with the same period last year.
The proportion of traditional business continues to decline and the gross profit margin is low. The company's building materials business 1H19 operating income year-on-year-71 to 6.39 million yuan, gross profit margin-1.4ppt to 13%, mainly because the plastic pipe profile business is greatly affected by macroeconomic and market competition, production and sales continue to decline.
The share buyback and employee stock ownership plan will be carried out in an orderly manner. As of July 3, 19, the company had repurchased a total of 49.14 million shares, accounting for 2.825% of the company's total share capital, and the share repurchase program had been completed. As of July 16, all the shares in the company's buyback special account have been transferred to the company's first phase employee stock ownership plan special account.
Profit forecast and valuation
Due to the downward adjustment of the market ADT assumption, we cut the 2020 net profit of 2019 by 2.7% to 7.1 billion yuan.
The company's current share price trades at 1.5 times price-to-book ratio in 2019 to 1.5 in 2020. Maintain the neutral rating and lower the target price by 6% to 14.81 yuan, corresponding to 1.7 times price-to-book ratio and 36.4 times earnings in 2019, which has 13% upside compared to the current share price.
Risk
The stock and bond markets fluctuated sharply, and the market trading volume declined significantly.
