Incident: Everbright Securities released its semi-annual report for 2023, which is consistent with the performance report. 1H23 achieved net profit of 2.39 billion/yoy +13%, and 2Q quarterly profit of 1.43 billion/yoy -1% /qoq +50%. 1H23's revenue was 6.18 billion/yoy +15%, and 2Q's quarterly revenue was 3.43 billion /yoy +7%. 1H23 weighted ROE is 3.94% /yoy+0.33pct.

The investment business has grown dramatically, and all other business lines are under pressure. The main revenue of 1H23 corporate securities is 5.72 billion yuan/yoy +12%. 1) Main revenue split: brokerage, investment banking, asset management, net interest, and net investment achieved revenue of 14.8, 6.1, 4.8, 89, and 2.15 billion yuan, respectively, compared to -13%, -24%, -28%, -28%, and +265%; 2) Looking at the main revenue composition, brokerage accounts for 26%, investment banking accounts for 11%, asset management accounts for 8%, net interest accounts for 16%, and net investment accounts for 38%.

Operating leverage and investment leverage have increased, and the scale of equity derivatives continues to grow. At the end of 2Q23, the company's total assets were 262 billion yuan/yoy +4% /+1% compared to the end of '22, net assets of 65.4 billion yuan/yoy +4% /compared to the end of '22; operating leverage at the end of '22 was 3.02 times /qoq+0.04 times/+0.06 times compared to the end of '22. In terms of investment business, the financial investment scale of the 2Q23 company was 127.7 billion yuan/yoy +25% /compared to the end of '22, and the investment leverage was 1.95 times /qoq+0.08 times/+0.06 times compared to the end of '22; the increase in investment leverage is expected to be driven by the growth of OTC derivatives. The nominal principal of 2Q23 derivative financial instruments reached 91.3 billion yuan/yoy +33%, and the nominal principal of equity derivatives was 71.6 billion yuan/yoy +21%; the estimated annual return on investment for 1H23 can be obtained. /yoy +2.2 pct.

The proxy buying business has declined with the market, and the scale of consignment financial products has increased. In terms of proxy buying business, due to low market trading popularity in the first half of the year, 1H23's proxy buying business revenue was 1.48 billion/yoy -17%, of which institutional commission revenue was 220 million/yoy -22%; in the dropshipping business, the company promoted region-specific management, accelerated wealth transformation, and increased the scale of consignment financial products; 1H23 sold financial products totaling 20.35 billion/yoy +97%, achieving net revenue of consignment financial products of 180 million/yoy -8% /industry ranking up 5 places. In terms of credit business: At the end of 1H23, the company lent out 37.4 billion/+2% compared to the end of '22, and the market share ratio was 2.4% /compared to the end of '22 - 0.04 pct.

The large asset management business remains stable, and the size of Everbright Prudential's non-cargo base continues to grow. Looking at performance, 1) Guang Securities Asset Management (wholly-owned subsidiary): 1H23 achieved revenue of 400 million/yoy -5% and net profit of 160 million/yoy +4%; 2) Everbright Prudential (55%): 1H23 achieved revenue of 260 million/yoy -10%, net profit of 160 million/yoy -26%; 3) Dacheng Fund (holding 25%): 1H23 achieved revenue of 1.05 billion/yoy +9%, net profit of +290 million/yoy +5%, with a total profit contribution of 260 million/yoy +0.5%, the share of profit 11.1% (same period last year, 12.6%). Looking at the asset management scale, 2Q23, the total volume of asset management fiduciary management was 305.5 billion/yoy -16%, and the average monthly scale of private equity asset management ranked 5th in the industry; at the end of 2Q23, Everbright Prudential's non-stock base size was 73.5 billion/yoy +14%, ranking 55th in the industry/up 2 places from the end of '22; Dacheng Fund's non-cargo base size was 166.9 billion/yoy +1%, ranking 28th in the industry/same as at the end of '22.

The investment banking business is clearly under pressure, and equity project reserves are abundant. 1H23's equity underwriting amount was 4.21 billion/yoy -65%, x of which 5 IPOs were underwritten, with an underwriting scale of 4.13 billion/yoy -52%, and a market share of 1.89% /yoy-0.70 pct; in terms of bond underwriting, 1H23 completed 580 debt underwriting projects, with a total underwriting amount of 179.2 billion/yoy -16%, with a market share ratio of 2.93% /yoy-0.95 pct, ranking 9th in the industry. The company has abundant equity project reserves. At the end of 2Q23, the number of refinancing projects under review was 8, and the number of refinancing projects under review was 6, and the number of science and technology innovation board project reserves was 6.

Investment analysis: Give Everbright Securities a recommended rating. In 2018, the MPS project was affected by the thunderstorm, and the company's performance indicators have bottomed out; currently, the risks of the MPS project have basically been cleared (no anticipated liabilities have been calculated since the 22nd annual report), and Everbright Securities has reorganized its business and started again after removing the burden of history. The net profit of Everbright Securities is estimated to be 4.34 billion yuan, 4.90 billion yuan, and 5.42 billion yuan respectively from 2023-2025E, +36.1%, +12.9%, and +10.6% year-on-year. The 8/25 closing price corresponds to the company's 23-25E dynamic PB of 1.38 times, 1.30 times, and 1.23 times, and dynamic PE of 20.3 times, 17.7 times, and 15.9 times. We selected Societe Generale Securities, Zhongtai Securities, Guoxin Securities, and CITIC Construction Investment, which have similar net assets and business models, as comparable companies, and gave the company a reasonable PB of 1.4 times in 2024 and a “recommended” rating.

Risk warning: The downward pressure on the economy is increasing; the activity of stock transactions in the market has declined sharply; the process of residents' capital entering the market has slowed down.