Incident: Zheshang Securities released its semi-annual report for 2023, which is consistent with the performance report and is in line with expectations. 1H23 achieved net profit of 9.1 million/yoy +25%, 2Q quarterly profit of 4.2 million/yoy +5% /qoq -13%.
1H23's revenue was 8.46 billion/yoy +13%, and 2Q's quarterly revenue was 3.53 billion/yoy -19%.
Investment bank revenue and net investment income increased significantly, and investment income became the main contributor to main revenue. The main revenue of 1H23's securities is 3.18 billion yuan/yoy +29%. 1) Main revenue split: brokerage, investment banking, asset management, net interest, and net investment achieved revenue of 9.1, 4.8, 180, 3.5 million yuan, and 890 million yuan respectively, compared to -7%, +81%, -20%, -10%, and +138%; 2) Looking at the main business revenue composition, brokerage accounted for 29%, investment banks accounted for 15%, asset management accounted for 6%, net interest accounted for 11%, and net investment accounted for 28%.
Total assets and financial investment assets have been steadily expanding, and operating leverage has continued to increase. At the end of 1H23, the company's total assets were 145.9 billion yuan /qoq-3% /+6% compared to the end of '22, net assets of 26.2 billion yuan/qoq -1% /+0.4% compared to the end of '22; operating leverage at the end of the period was 4.75 times /qoq-0.13 times/+0.30 times compared to the end of '22. In terms of investment business, the financial investment scale at the end of 1H23 was 47.5 billion yuan/qoq -3% /+4% compared to the end of '22, of which, transactional stock assets were 5.11 billion yuan/+150% compared to the end of '22. The company is expected to expand its stock ownership scale; estimates show an annualized return on investment of 3.81% for 1H23 (1.71% for 1H22, 1.49% for 2022).
The investment banking business has performed well, the underwriting scale has increased rapidly, and the location advantage of Zhejiang Province has been maintained. 1H23 Zheshang Securities continued to improve financing innovation and issuance and underwriting capabilities. The equity and bond underwriting scale reached 85.25 billion yuan/yoy +139%. Specifically, in terms of equity underwriting: 1H23 company underwrote 2 IPOs, underwriting scale of 2.98 billion yuan/same period last year was 0, with a market share of 1.42% /ranking 15th in the industry; 2 refinancing projects, with an underwriting scale of 500 million yuan/yoy +32%. In terms of bond underwriting, 1H23 completed 172 bond underwriting projects, with an underwriting scale of 81.42 billion yuan/yoy +153%, ranking 7th in the industry/up 7 places from the same period last year. At the same time, the company continued to take advantage of its location and resource advantages in Zhejiang Province, and 1H23 ranked 1st in terms of domestic debt underwriting amount and singular value in Zhejiang Province.
The scale of the proxy buying business and market share in the stock base remained stable, and institutional commission revenue continued to grow. 1H23 was affected by low market transaction activity, and the proxy buying business was under slight pressure. 1H23's A-share turnover was 2.3 trillion yuan/yoy +2%, with a market share ratio of 1.05% /yoy+0.05 pct; 1H23's net revenue from proxy buying business was 790 million yuan/yoy -2%, of which institutional commission revenue was 270 million yuan/yoy +10%. In terms of affiliate marketing business, the company insists on being guided by customer needs and promotes the FOF product transformation layout. 1H23 added 19.9 billion yuan/yoy +23% in financial product sales, 42 billion yuan/yoy -5% in financial product holdings; 1H23's affiliate revenue was 120 million yuan/yoy -28%.
The stock scale of the asset management business has bottomed out and is gradually showing a continuous upward trend. The company carried out asset management business through its wholly-owned subsidiary Zheshang Asset Management. 1H23 Zheshang Asset Management's net profit was 96 million yuan/yoy +130%; 1H23 focused on core products, continuously optimized the investment and research team, product layout and business plan, and successfully overcame the double suppression of the decline in business scale brought about by the new asset management regulations and drastic adjustments in the bond market at the end of last year. The asset management scale began to show an upward trend. Looking at the asset management scale, the company's stock asset management scale at the end of 2Q23 was 96.92 billion yuan/yoy -7%, of which the public asset management scale was 28.98 billion yuan/yoy +22%; in terms of newly developed products, 1H23 Zhejiang Commercial Asset Management's initial public offering and collective product scale was 3.77 billion yuan/yoy +400%, featuring fixed income + and FOF products.
Investment analysis opinion: Give Zheshang Securities a recommended rating. The net profit of Zheshang Securities is estimated to be 1.93 billion yuan, 2.25 billion yuan, and 2.55 billion yuan respectively in 2023-2025E, +17%, +16%, and +13% year-on-year. The 8/25 closing price corresponds to the company's 23-25E dynamic PB of 1.51 times, 1.43 times, and 1.34 times, and dynamic PE of 21.0 times, 18.1 times, and 16.0 times.
Risk warning: capital market reform falls short of expectations; market liquidity falls short of expectations; stock market falls sharply.