Incident: CITIC Construction Investment released its semi-annual report for 2023, and performance fell short of expectations. 1H23 achieved revenue of 13.46 billion/ yoy -6.6%, and return profit of 4.31 billion/ yoy -1.7%; of these, 2Q23's attributable profit was 1.87 billion/ yoy -34%/qoq -23%. Total assets at the end of 1H23 were 533.4 billion dollars, +8.7% from the beginning of the year; net assets of 95.6 billion yuan, +2.5% from the beginning of the year; 1H23 weighted average ROE (not annualized) of 5.41% /yoy-0.58 pct; operating leverage was 4.55 times, +0.25 times from the beginning of the year.

Net profit grew faster than revenue, mainly due to a sharp decline in bulk commercial revenue, a sharp increase in non-operating expenses, and a rebound in depreciation. According to the company's semi-annual report, other business revenue: 1H23 Other business revenue (mainly bulk commerce) decreased by 1.87 billion dollars year on year, dragging down revenue growth rate by about 13 pct; non-operating expenses: 1H23 The company's non-operating expenses were 980 million yuan (1H22 was 4.83 million), mainly due to the amethyst storage incident. Credit impairment: 1H23 credit impairment rushed back 0.18 million (1H22 accrued 65 million).

Investment banking and brokerage businesses declined year on year, while investment and asset management increased year on year. According to the company's semi-annual report, 1H23's main revenue (excluding bulk commerce and government subsidies) was 11.7 billion/yoy +8%. By business, brokerage, investment banking, asset management, net interest, and investment (including exchange) revenue were 27.9, 26.2, 6.1, 10.8, and 4.37 billion dollars, respectively, at -9%, -7%, +51%, +11%, and +43%, respectively. The main revenue composition is as follows: brokerage accounts for 24%, investment banks account for 22.5%, asset management accounts for 5%, investment accounts for 37%, and net interest accounts for 9% (other handling fees and long-term stock investment together account for 2.5%). Investment income is the largest pillar of the company's main revenue. Among them, 1H23 CITIC Construction Investment (alternative and follow-up investment subsidiaries) and CITIC Construction Investment Capital (direct investment subsidiary) 1H23 achieved net profits of 180 million yuan and 85 million yuan, respectively, +65% and +165% over the previous year.

Investment assets grew steadily, and the scale of equity derivatives increased year-on-year. According to the company's semi-annual report, the company's investment scale at the end of 1H23 was 285.3 billion/+9.4% compared to the beginning of the year, of which transactional financial assets were 203.5 billion/+2% compared to the end of '22, and investment leverage was 2.99 times/+0.19 times compared to the end of '22. Estimated net return on investment was about 3.2% (investment income/average investment size). The scale of equity derivatives increased sharply: at the end of 1H23, the nominal principal of the company's OTC derivatives was 724.1 billion/ +22% compared to the end of '22, of which equity derivatives were 232.6 billion/+52% compared to the end of '22.

Under a high base, investment banks were under slight year-on-year pressure, and project reserves were plentiful. According to the company's semi-annual report, 1H23's investment banking net revenue was 2.62 billion yuan, and the investment banking division's operating profit was 1.11 billion/ yoy -17% /division profit margin 42%/yoy-6.2 pct, accounting for 18.1% of the company's total operating profit. In terms of equity financing business, according to Wind data, according to the issuance date, 1H23's IPO underwriting scale was 28.08 billion/yoy -30% (industry -16%), ranking 2nd in the industry (flat 1H22), market share of 12.84%/yoy-2.6pct; refinancing scale (excluding convertible bonds) of 42.35 billion/yoy -21%, ranking 3rd in the industry.

In terms of debt financing business, according to Wind data, according to the issuance date, the bond underwriting scale was 687.9 billion/yoy +2%, ranking 2nd in the industry. According to Wind data, as of the end of 1H23, the company's equity financing applications ranked 2nd overall, with 136 IPOs queued for projects and 73 under review.

The market share of the brokerage business declined slightly, and the transformation of wealth management continued to deepen. According to the company's semi-annual report, brokerage business: 1H23's securities brokerage business net revenue was 2,373 billion/yoy -12%, with a market share of 3.99% /yoy-7 bps, ranking 7th in the industry; among them, revenue from consignment financial products and commission revenue for institutional seats were 445 million/yoy -5% and 550 million/yoy -16%, respectively, accounting for 41% of net revenue from brokerage business. Wealth management: At the end of the period, equity funds had 72.2 billion dollars/yoy +2%, ranking 5th in the industry (1H22 ranked 4th); 1H23 “Dragonfly Point” app ranked 7th in the industry in average monthly activity (same as in 2022). Credit business: 1H23's two finance balance was 60.84 billion/ up 1.4% from the end of '22, market share was 3.8%/down 7 bps from the end of '22, 180,500 securities accounts, up 2.4% from the end of '22; 1H23 achieved interest income of 1.94 billion yuan (ranked 7th in the industry), accounting for 37% of net interest income.

Investment analysis opinion: Lower the profit forecast and maintain the rating for increasing holdings. Considering the sharp year-on-year increase in the company's 1H23 non-operating expenses, the company previously announced the establishment of a special fund for advance payment of the Amethyst storage event (scale was 1 billion yuan) on 5/26, so we raised 23E non-operating expenses; at the same time, considering that market trading activity in 23 years and demand for dual finance were still low, we lowered the market ADT and the scale of the two finance assumptions, thereby lowering the profit forecast. The estimated net profit for 23-25E is 98.1 billion yuan, 11.11.13 billion yuan (original forecast: 98.0, 11.4.4 billion yuan), +21% year on year, + 21% +18%. Considering that the company's investment banking industry ranking is stable and IPO reserves are abundant, it still maintains its holdings growth rating.

Risk warning: The Fed raised interest rates sharply; liquidity was tightened, and the process of residents' capital entering the market slowed down.