2019 and 1Q20 performance are below our expectations
The company's revenue in 2019 was from + 33% to 2.48 billion yuan, the net profit from home was + 74% to 260 million yuan from the same period last year, and the net profit from non-return was + 184% to 440 million yuan from the same period last year, with a profit per share of 0.15 yuan, which was lower than we expected. the management expenses caused by the increase in labor costs and confirmation of share payment fees have increased significantly. The revenue of subsidiary Huachuang Securities in 2019 was + 37% to 2.502 billion yuan (the caliber of the securities industry report), and the net profit was + 123% to 543 million yuan.
The company's 1Q20 revenue was + 75% to 750 million yuan, and the net profit returned to the mother was-51% to 130 million yuan compared with the same period last year (securities subsidiaries reported monthly profit from January to March compared with the same period last year), which was lower than our expectation, mainly due to the fluctuation of investment income and the increase in credit impairment (1Q20 140 million yuan vs. 1Q19-63.25 million yuan / 4Q19-39.29 million yuan).
Trend of development
The investment business accounts for a high proportion and the performance fluctuates greatly. Investment income in 19 years was + 36% to 1.26 billion yuan, accounting for 51% of the total. The scale of investment assets is + 14% to 20.1 billion yuan compared with the beginning of the year, of which bonds account for 78%. 1Q20 investment income is-40% / month-on-month-17% to 320 million yuan, accounting for 42%, which is greatly affected by market fluctuations (1Q20 Shanghai and Shenzhen 300 / gem Index-10% vs. 1Q19 + 29% Universe 35%).
Other securities business: 1) Brokerage business: the 19-year net income of brokers is + 33% to 620 million yuan compared with the same period last year, of which the income from buying and selling securities by agents is + 28% year-on-year, and the income from seat leasing is + 13% / 33% of the income of securities brokers. 2) Investment banking business: year-on-year net income of investment banks in 19 years ranges from + 49% to 230 million yuan, and bond / equity underwriting increases significantly with the increase in bond / equity underwriting (bond / equity underwriting compared with + 3.0x/+9.8x). 3) Asset management business: the net income of asset management in 19 years was-26% to 140 million yuan compared with the same period last year, and the scale was-31% to 105.3 billion yuan at the beginning of the year. 4) Credit business: the 19-year net interest income is 103 million yuan, of which the interest income of the two financial institutions is + 43% to 180 million yuan compared with the same period last year, and the scale of the two financial institutions is + 59% to 2.86 billion yuan compared with the same period last year. Stock pledge interest income is + 2% to 400 million yuan year-on-year, and the balance sheet stock quality is-31% to 4.87 billion yuan. The net interest income of 1Q20 is 800000 yuan, of which the growth of financing (year-on-year + 40% / month-on-month + 4%) and debt scale (year-on-year + 13% / month-on-month + 5%) drives interest income / expenditure to 8% of interest income / expenditure respectively.
On the cost side: 1) high fees drag on 19 years' performance: 19 years' management expenses are + 50% to 1.88 billion yuan year-on-year, and the corresponding expense rate is from + 8.3ppt to 76% year-on-year, mainly for the increase in labor costs and the payment of recognized shares. 2) the high level of credit impairment is a drag on 1Q20 performance: 1Q20 credit impairment is 140 million yuan (vs. 1Q19-6325 yuan / 4Q19-39.29 million yuan), accounting for 74% of the total profit.
Profit forecast and valuation
As a result of the increase in expense rates and asset impairment assumptions, we have reduced our 2020 profit by 29% to $510 million and introduced a profit of $560 million in 2021. The company's current share price corresponds to 1.32x 2020eP/B (1.76x excluding goodwill). Maintain the neutral rating, downgrade the target price by 18% to 12.2 yuan, corresponding to 1.46 x 2020e Phand B (1.95x after excluding goodwill) and 11% upside space.
Risk
The trading volume shrank sharply, the market fluctuated sharply, and the capital market reform was less than expected.