In the first half of 2023, Zhongyuan Securities achieved a net profit of 164 million yuan, an increase of 294 million yuan over the same period last year. The decline of the negative impact of market volatility is the main reason for the year-on-year increase in net profit in the first half of the year. 2023H1, Central Plains Securities investment income + fair value change income is 515 million yuan, accounting for 53.54% of operating income (except other business income). As the only provincial legal person listed securities firm in Henan Province, Zhongyuan Securities is expected to build its core competitiveness by giving full play to its local location advantages.

The net profit of 164 million yuan is in line with expectations, turning a loss into a profit of + 294 million yuan compared with the same period last year. 2023H1, Central Plains Securities achieved operating income of 1.046 billion yuan, an increase of 33.77% over the same period last year; net profit of its parent was 164 million yuan, an increase of 294 million yuan over the same period last year and turned a profit; the current EPS was 0.04 yuan per share, + 0.07 yuan over the same period last year; and diluted ROE was 1.21%, an increase of 2.13% over the same period last year. At the end of the period, the BVPS belonging to common shareholders was 2.99 yuan, up 1.01% from the beginning of 2023.

Asset-heavy business: the increase in investment income comes from the change of fair value from a year-on-year turnround to profit, and the decline in interest payments drives the growth of credit business. 2023H1, the self-investment business income of Central Plains Securities was 515 million yuan (investment income + fair value change profit and loss), a substantial increase of 192% over the same period last year, accounting for 53.54% of the operating income (among other business income). The growth of proprietary business income was mainly due to the elimination of the negative impact of market fluctuations, with fair value change income rising to 49 million yuan from-463 million yuan in the same period last year. From the perspective of investment asset structure, as of the end of 2023H1, the financial investment assets of Central Plains Securities was 28.2 billion yuan, an increase of 17.13% over the beginning of the year, mainly fixed income assets (debt investment, other debt investment, bonds), accounting for 69.30%. Among them, bond investment is the main component, with a scale of 18.639 billion yuan, accounting for 68.27% of transactional financial assets and 48.81% of financial investment assets. The fixed collection investment assets of Central Plains Securities expanded rapidly in the first half of the year. As of the end of 2023H1, the ratio of self-operated non-equity securities and their derivatives to net capital was 335.51%, a significant increase of 78.38 percentage points over the beginning of the year.

In terms of credit business, the net interest income of 2023H1 and Zhongyuan Securities was 75 million yuan, an increase of 130.52% over the same period last year, accounting for 7.75% of the operating income (among other business income). The increase in net income from the credit business was mainly due to a sharp decline in interest payments, which were 334 million yuan for 2023H1 and Zhongyuan Securities, down 15.31% from the same period last year.

The scale of credit business declined as a whole, with interest income of 409 million yuan in the first half of the year, down 4.26% from the same period last year.

By the end of 2023H1, the margin balance of Zhongyuan Securities was 6.932 billion yuan, an increase of 1.83% over the beginning of the year, and the stock pledge balance was 1.812 billion yuan, down 15.32% from the beginning of the year. From the perspective of risk level, by the end of 2023H1, the average guarantee ratio of stock pledge repurchase business in the Central Plains Securities statement was 197.90%, and the overall credit risk was higher than that of the same industry.

Brokerage business: actively promote digital transformation, the scale of business has declined. 2023H1, the net income of handling fees of Zhongyuan securities brokerage business was 267 million yuan, down 18.85% from the same period last year, accounting for 27.73% of the operating income (among other business income). Zhongyuan Securities actively promotes the digital transformation and empowerment. The monthly active APP of Cai Shengbao has exceeded 1 million, and the comprehensive ranking of Internet operation indicators such as DAU and MAU ranks 24th among domestic securities firms. 2023H1, the scale of Zhongyuan securities brokerage business has declined: the trading volume of stock funds is 790.7 billion yuan, down 5.31% from the same period last year, and the market share is 0.32%; the net income from agency handling fees for buying and selling securities / consignment financial products / futures brokerage is 2.17 gambit 0.07 trillion yuan respectively, down 17%, 38% and 22% respectively from the same period last year.

Investment bank-asset management business: the scale of investment bank equity business has declined, while the scale of asset management has maintained growth. 2023H1, the net income of Zhongyuan Securities investment banking business was 25 million yuan, down 79.24% from the same period last year, accounting for 2.59% of the operating income (among other business income), down 13.92% from the same period last year. The decline in investment banking revenue is due to the decline in the scale of equity business with higher fees. The main underwriting amount of Zhongyuan Securities 2023H1 investment bank was 3.594 billion yuan, up 6.68% from the same period last year, of which the main underwriting amount of equity was 576 million yuan, down 55.56% from the same period last year. In terms of asset management business, Zhongyuan Securities 2023H1 realized a net income of 29 million yuan in handling fees, an increase of 55.01% over the same period last year. The increase in income mainly comes from the expansion of the scale of asset management. by the end of 2023H1, the asset management scale of Zhongyuan Securities was 3.952 billion yuan, up 39.97% from the same period last year and 3.21% from the beginning of the year.

Risk factors: a-share turnover decreased significantly; credit business risk exposure; investment losses; sustained losses in overseas business.

Earnings forecast, valuation and rating: considering the gradual arrival of the active capital market policy, we adjust Zhongyuan Securities' 2023 EPS 2024 EPS forecast to 0.08 EPS 0.10 yuan (the original 2023 EPS forecast 0.05 pound 0.07 yuan), and the new 2025 EPS forecast is 0.11 yuan The adjusted BVPS of Zhongyuan Securities in 2023 / 2024 is estimated to be 3.03 / 3.12 (the BVPS in 2023 / 2024 is 2.99 / 3.03), and the BVPS in 2025 is estimated to be 3.21 / 3.21. Central Plains Securities, as the only provincial legal person listed securities firm in Henan Province, is an important starting point to promote the development of Henan capital market. Actively driving the development of brokerage business through digitalization, it is expected to combine the local advantages of Henan Province to build core competitiveness. Considering the scale of net assets, business volume and net profit, we select Guolian Securities, first Entrepreneurship, Guosheng Financial Holdings and Huaxin shares as comparable companies of Central Plains Securities. At present, Guolian Securities PB is 1.72x, first Venture 1.72x, Guosheng Financial Holdings 1.76x, Huaxin shares 1.65x, and the average valuation of the four comparable brokerages is about 1.74x PB, which is in the 40th percentile since the beginning of 2018. The current PB of Zhongyuan Securities is 1.38 times, and its valuation is lower than the average value of comparable companies, which is mainly due to the continued losses in the company's overseas business and the existence of certain credit risks and compliance risks, which suppress the stock price.