Strong wealth management and seat rental income business strength is an important bright spot of Zheshang Securities. In 2021, Zheshang Securities put forward the management idea of comprehensive layout and characteristic development, and took creating a new benchmark for medium-sized securities firms to break through and develop as its own development direction. in the future, it will focus on key projects such as "company capital replenishment, wealth management reform, strategic customer service, institutional business integration", and strive to achieve a new breakthrough in industry ranking.

ROE is higher than the industry average, and the change of CEO is worth paying attention to. At present, the comprehensive strength of Zheshang Securities is about 21 in the industry, and light assets business is dominant in operating income, accounting for 71.14% of 2022 young assets business income. In 2022, revenue from Zheshang Securities reached an all-time high of 16.814 billion yuan, but its net profit fell 24.66 per cent year-on-year to 1.654 billion yuan. At the profit level, from 2020 to 2022, the weighted ROE of the securities industry was 7.27%, 7.83% and 5.31% respectively, while the ROE of Zheshang Securities was 9.78%, 9.90% and 6.58% respectively, higher than the industry average. In terms of corporate governance, the subsequent appointment of the new president and the promotion of fixed growth are worthy of attention.

Brokerage business: the share is rising in the fierce competition, and the transformation of wealth management is advancing at a high speed. Zheshang Securities regards institutional customers as an important direction of market development, and puts forward the development idea of institutional brokerage business based on customer demand. The correct strategic guidance has also produced positive returns. In the face of fierce competition in Zhejiang Province, the stock base trading volume of Zhejiang Merchants in 2022 was 4.65 trillion yuan, with a market share increase of 0.09% over the same period last year. In terms of wealth management, Zhejiang merchants' income from consignment sales of financial products was 303 million yuan in 2022, down 36.6% from the same period last year, and accounted for 16.2% of brokerage income (including futures business), ranking in the forefront of the securities industry. In the future, Zheshang Securities will actively promote the gradual transformation of wealth management business from product sales model to asset allocation model, deeply bound with the medium-and long-term interests of customers, and build its own wealth management brand.

Investment business: affected by the market, the subsidiaries recorded a net loss. From 2020 to 2022, the profit and loss of investment income and fair value changes accounted for 28%, 28% and 4% of revenue (excluding other business income). The absolute value and proportion of investment income decreased significantly in 2022. The parent company of Zhejiang Merchants relies on the securities self-operated branch to carry out self-management of bonds, derivatives and multi-asset and multi-strategy investment business. the growth of its investment income mainly depends on the expansion of investment assets, with an average annual compound growth rate of 22.3% of financial investment assets in the past three years.

At the subsidiary level, Zheshang Investment and Zheshang Capital operate alternative investment and PE fund management business respectively, but affected by the market decline and investment project exit cycle, they recorded net losses of 21.03 million yuan and 480000 yuan respectively in 2022, with a combined profit contribution rate of-1.1 per cent.

Investment bank: the underwriting scale has declined, and the location advantage is still significant. From 2020 to 2022, the service fee income of Zhejiang Securities Investment Bank was 1.026 billion yuan, 1.083 billion yuan and 779 million yuan respectively, and the income scale decreased significantly in 2022, mainly due to the large decline in the scale of additional issuance, convertible bonds and bond underwriting. Although the scale of investment banking business has declined, Zheshang Securities relies on rich private enterprises in Zhejiang and is still the main force in the local capital market. The bond underwriting scale of Zheshang Securities Company ranks among the top 10 in the industry for three consecutive years, and ranks first in scale and odd number in Zhejiang Province for four consecutive years. Bond financing business has obvious location advantages. In 2017, the Zhejiang provincial government put forward the "Phoenix Action" plan to promote enterprise listing and mergers and acquisitions. Taking this as an opportunity, Zheshang Securities has accumulated a relatively rich project reserve. By the end of June 2023, the number of Zheshang Securities Reserve projects was 39.

Asset management business: asset management of securities firms as the core, relying on active management capabilities to build core competitiveness. Zhejiang Merchants Securities carries out the asset management business of securities firms through the asset management of Zhejiang businessmen, a wholly-owned subsidiary. By the end of 2022, the asset management scale of Zhejiang businessmen was 91.719 billion yuan, of which the active management scale was 89.226 billion yuan, accounting for 97.28% of the total scale, an increase of about 16.44% over the same period last year. Zhejiang Merchants Asset Management is one of the 14 securities and asset management subsidiaries with public offering licenses in the industry, with a single, collective, special and public capital management scale of 25.2 billion, 31.2 billion, 7.3 billion and 28 billion yuan respectively. Zhejiang businessmen adhere to the investment and research construction as the core, to make the best product performance as the primary task, and to build the core competitiveness of products with income. In addition, Zheshang Securities holds a 25% stake in Zheshang Fund, which contributed less than 1% of profits in 2022.

Risk factors: market turnover decline risk; wealth management market development is lower than expected; corporate credit business risk exposure; corporate investment business loss risk; corporate equity financing difficulty risk.

Investment suggestion: with the reform of the capital market and the business innovation of the securities industry, the securities industry will move towards head concentration, which will be conducive to the improvement of the valuation of head and upstream securities firms. Benefiting from the development of cutting-edge businesses such as wealth management and institutional services, Zheshang Securities is expected to gradually move towards the top echelon of the industry. The subsequent appointment of the new president and the promotion of fixed growth are worthy of attention. We adjust the forecast of annual operating income in 2023-24-25 to 17.878 billion / 18.562 billion / 18.979 billion (the forecast before operating income of 2023Universe is 16.613 billion / 175.98, and 2025 is the new forecast), and the forecast of net profit vested in the parent company is 1.922 / 2.351 / 2.631 billion (the forecast before net profit of 2023Universe is 2.284 / 2.737 billion in 2023, and the new forecast is 2025). We believe that Zheshang Securities can maintain a high valuation in the short term, and the long-term valuation will still be determined by its own ROE level.