Yongan Futures disclosed its 2023 semi-annual report, and net profit increased 30% year-on-year. In the first half of 2023, the company achieved operating income of 11.966 billion yuan, a year-on-year decrease of 38.80%; net profit from parent was 412 million yuan, an increase of 30.40% over the previous year. The weighted average return on net assets for the first half of the year was 3.39%, an increase of 0.70 percentage points over the previous year. The basic earnings per share was 0.28 yuan, an increase of 27.27% over the previous year. Looking at a single quarter, the company achieved net profit of 204 million yuan in the second quarter, down 1.92% from the first quarter.

The decline in the scale of risk management has dragged down revenue, and the contribution of futures brokerage performance has increased. In the first half of 2023, the subsidiary's risk management business achieved revenue of 11.136 billion yuan, a year-on-year decrease of 41.33%, mainly due to the slowdown in the overall development of the futures risk management industry and a decline in the scale of basis difference trade; during the same period, the company's futures brokerage turnover was 104 million lots, up 10.29% year on year, and achieved brokerage revenue of 622 million yuan, an increase of 68.56% over the previous year, mainly due to a rise in futures market activity.

The increase in the number of overseas customers is compounded by the overseas interest rate hike cycle, and the position of cross-border business has been consolidated. In the first half of 2023, the number of institutional accounts opened by the company's overseas financial services business increased 1.5 times year on year, achieved operating income of 179 million yuan, an increase of 67.29% over the previous year, and achieved operating profit of 64 million yuan, an increase of more than 5 times over the previous year. In the first half of 2023, the company achieved net interest income of 323 million yuan, an increase of 18.75% over the previous year. Judging that the Fed's interest rate hike is an important reason for the increase in the company's net interest income.

The derivatives market continues to expand, and the company has entered a leverage expansion cycle. There are opportunities for innovation in the industry: First, new derivatives are being marketed at an accelerated pace. The “Futures and Derivatives Law” clearly establishes a registration system for the listing of new types of futures and options. Innovation and development in China's futures market is accelerating, and the introduction of new derivatives varieties is accelerating; second, the opening up of the futures market to the outside world continues to expand. The opening up of specific types of futures and the expansion of the scope of QFII and RQFII investment. Third, functions such as derivatives marketing from venture subsidiaries have been transferred to the parent company. Futures companies are expected to issue beneficiary certificates, opening up leverage space. In the first half of 2023, OTC derivatives in the entire industry added 1.49 trillion yuan in nominal principal, an increase of more than 60% over the previous year. As an industry leader, the company will get first-mover opportunities for business innovation.

Investment suggestions: Based on the company's good profit performance and growth space, we predict net profit of 830 million yuan, 851 million yuan, and 847 million yuan for 2022-2024, a growth rate of 24%/2%/-0.5%. The PE corresponding to the current stock price is 30.16/29.43/29.57x, and PB is 1.89/1.74/1.62x. We maintain our “increase in holdings” rating for the company.

Risk warning: Profit prediction bias is high risk; futures market cycle fluctuation risk; policy uncertainty risk of exchange fee revenue reduction; risk of sharp decline in interest income; risk of large fluctuations in investment income; risk of large fluctuations in investment income; asset management business faces risk of regulatory policy changes; risk management business faces complex risks; business innovation risk; overseas regulatory risk.