Incident: CaiTong Securities released its semi-annual report for 2023, which is in line with the performance forecast. 1H23 achieved net profit of 1.04 billion/yoy +64%, 2Q quarterly profit of 540 million/yoy +14% /qoq +10%. 1H23's revenue was 3.48 billion/yoy +56%, and 2Q's quarterly revenue was 1.69 billion yuan/yoy +7%. 1H23 weighted average ROE was 3.09% /yoy+0.80pct.
Investment banks and investment businesses have increased sharply, and net interest income is under pressure. The main revenue of 1H23 corporate securities is 3.37 billion yuan/yoy +54%. 1) Main revenue split: brokerage, investment banking, asset management, net interest, net investment, and long-term stock investment (mainly Yongan Futures and CaiTong Fund) achieved revenue of 5.8, 3.2, 7.0, 2.6, 12.4, and 260 million yuan respectively, compared to -4%, +73%, +5%, -31%, +14951%, +14951%, and -22%; 2) Looking at the main revenue composition, brokerage accounts for 17%, investment banking accounts for 9%, asset management accounts for 21%, net interest accounts for 8%, and long-term investment accounts for 37%. 8%
The scale of investment assets has expanded, and the return on investment has improved markedly. At the end of 2Q23, the company's total assets were 129.8 billion yuan/qoq +3% /compared to the end of '22, net assets were 33.7 billion yuan/qoq +1% /+2% compared to the end of '22; operating leverage at the end of the period was 3.27 times /qoq+0.09 times/+0.08 times compared to the end of '22. In terms of investment business, the company's financial investment scale at the end of 2Q23 was 70.3 billion yuan/qoq +6% /compared to the end of '22, of which, transactional stock assets were 1.76 billion yuan/+32% compared to the end of '22; it is estimated that 1H23's annualized return on investment was 3.66% /yoy+3.62 pct.
The scale of asset management is growing steadily, and the total profit share of large asset management lines is 25 pct. Looking at performance, 1) CaiTong Asset Management (wholly-owned subsidiary): 1H23 achieved revenue of 790 million/yoy +15%, net profit of 210 million/yoy +18%, contributing 20.3% of profit; 2) CaiTong Fund (holding 40%): 1H23 achieved revenue of 390 million/yoy +3%, net profit of 110 million/yoy -0.6%, contributing 4.4% of the company's total profit. Looking at the scale of asset management, thanks to the recovery in the 2Q bond market, which led to a recovery in the net value and scale of fixed income funds, both CaiTong Asset Management and Caitong Fund AUM grew. At the end of 2Q23, Caitong Asset Management was 99.7 billion/+15% compared to the end of '22, ranked 42nd in the industry/2 places up 2 places from the end of '22; Caitong Fund's non-cargo AUM was 56.1 billion/+27% from the end of '22, ranking 64th in the industry/up 6 places from the end of '22.
Breakthroughs have been made in equity and debt underwriting business, and Zhejiang Province has outstanding location advantages. 1H23 achieved breakthroughs in the scale of its equity and debt underwriting business, driving investment bank revenue to +73% year-on-year. According to statistics on the issuance date, 1H23's IPO lead underwriting scale was 860 million/yoy+430%, market share was 0.39% /yoy+0.33 pct, refinancing underwriting scale was 2.98 billion/yoy +1002%; bond underwriting scale was 76.76 billion/yoy +146%, and market share was 1.24% /yoy+0.69 pct. The investment banking business is deeply involved in Zhejiang. The company gives full play to its geographical, industrial and professional advantages, focuses on building a “platform-based investment bank”, is deeply involved in the Zhejiang region, and has built major collaboration in the external ecosystem; 1H23 Caitong Securities ranked ninth in the country in terms of underwriting of corporate bonds and corporate bonds and first in Zhejiang.
The brokerage business is under slight pressure, institutional commission revenue has increased dramatically, and the market share of the two finance business has increased slightly. In terms of proxy buying business, 1H23 CaiTong Securities has net revenue of 500 million yuan/yoy -2%, of which institutional commission revenue is 190 million yuan/yoy +163%. In terms of dropshipping business, the company improved the winner product line and continued to increase the number of product customers and product ownership scale; 1H23's financial products held an average of +7% year-on-year ratio, achieving consignment revenue of 80 million yuan/yoy -16%. In terms of credit business, the company's loan balance at the end of 2Q23 was 16.9 billion yuan/+6% compared to the end of '22, with a market share ratio of 1.1% /+0.03 pct compared to the end of '22; it achieved interest income of 51 million yuan/yoy -12%.
Investment analysis opinion: Give a “recommended” rating. 1H23 In the context of XIDA being cold and the growth rate of the public offering scale is low, the company's asset management business, which is an important profit pillar, is clearly resilient. As market trading activity picks up in the second half of the year, the company's performance is expected to continue the recovery trend. It is estimated that the net profit of 2023-2025E CaiTong Securities will be $2.02 billion, $2.25 billion, and $2.66 billion, respectively, or +33.4%, +11.2%, and +18.0% year-on-year. The 8/25 closing price corresponds to the company's 23-25E dynamic PB of 1.13 times, 1.08 times, and 1.02 times, and dynamic PE of 19.0 times, 17.1 times, and 14.5 times.
Risk warning: capital market reform falls short of expectations; market liquidity falls short of expectations; stock market falls sharply.