Matters:
Societe Generale Securities announced 2023H1 results, with operating income of 6.938 billion yuan (+40.28% YoY), net profit of 1,796 billion yuan (+30.73% YoY), and net assets of 53.222 billion yuan (+1.83% compared to the end of the previous year).
Commentary:
The increase in revenue from the heavy capital business led to an increase in net profit. Heavy capital business revenue was 2,776 billion yuan (+160.73% YoY). It accounted for 40.03% of total revenue (+18.48 pct. YoY).
(1) H1 proprietary business revenue of 1,777 billion yuan (YoY +536.97%) (investment income+change in fair value+interest income from other debt investments - investment income of joint ventures). Currently, the company's fixed income self-operated assets account for 93.90% (year-on-year -0.37 pct), which is declining.
(2) Credit business: Net interest income of 998 million yuan (+27.08% YoY). Interest revenue from the Liangrong business was 916 million yuan (-7.88% year on year), the scale of the Liangrong business was 28.091 billion yuan (-1.87% YoY), and the market share of Liangrong was 1.77% (down 0.02 pct from the previous year). Interest income from the pledge business was 37 million yuan (-52.05% year on year), and the scale of the pledge business was 1,759 million yuan (-45.30% year on year), and the pressure continued to drop.
Fee revenue declined year over year, brokerage business is still recovering, and investment banking business is growing steadily. Net processing fee revenue of $3,374 million (-8.3% YoY), of which:
(1) Net revenue from brokerage fees was 1.23 billion yuan (-13.6% year on year). Judging from market trading activity, the average daily trading volume of the stock base in the 23Q1 market was 878.75 billion yuan (-12.8% year on year), resulting in a year-on-year decline in revenue. Entering 2023Q2, trading activity has recovered to a certain extent, and the average daily stock trading volume is +6.5% year-on-year.
(2) Net revenue from asset management business was 70 million yuan (-1.7% YoY). Of this amount, AUM was entrusted with management of 87.73 billion yuan (+18% compared to the end of the previous year).
Net income from fund management was $1,356 million (-9.7% YoY). It accounted for 19.54% of total revenue (down 10.82 pct from the previous year). 1. The company held 51% of the shares in Xingquan Fund, achieved revenue of 2,091 billion yuan (-11.40% YoY) and net profit of 796 million yuan (-13.48% YoY). Equity plus hybrid fund size: $162,267 billion (-16.88% YoY). 2. China Southern Fund (9.15% shareholding ratio) achieved revenue of 3,521 million yuan (+7.7% YoY) and net profit of 985 million yuan (+10.68% YoY). China Southern Fund equity+hybrid fund size: 265.676 billion yuan (-10.66% YoY).
(3) Net revenue from the investment banking business was 590 million yuan (+21.5% year on year), and 9 underwriting projects were completed, totaling 11.01 billion yuan, of which the IPO lead underwriting scale was 8.12 billion yuan, ranking 8th in the industry.
Investment advice: The company's heavy capital business revenue has increased significantly, leading to a steady recovery in net profit. Market trading activity declined year-on-year in the first half of the year, which led to a decline in the company's capital-light business revenue. We maintain our 2023/2024/2025 EPS forecast of 0.44/0.51/0.59 yuan, BPS of 6.48/7.01/7.68 yuan, corresponding PB of 1.00/0.93/0.85 times, and ROE of 6.76%/7.20%/7.71%, respectively. Based on peer comparison and relative valuations and market conditions, considering the company's strong wealth management capabilities, we maintained a PB valuation 1.3 times the company's 2023 performance, corresponding to a target price of 8.4 yuan, and maintained a “recommended” rating.
Risk warning: financial regulation risks; falling market transaction volume; declining risk appetite; capital market innovation falling short of expectations; repeated and worsening domestic and global epidemics; and recovery of the real economy falling short of expectations.