Main points of investment

Event: South China Futures released the third quarterly report of 2023, the company's 23Q1~3 realized revenue of 4.848 billion yuan, down 6.94% from the same period last year, and achieved a net profit of 298 million yuan, an increase of 126.21% over the same period last year.

The high increase of net overseas interest income under the high interest rate environment drives the company's performance to achieve better results: 1) the growth of overseas net interest income is gratifying. In terms of itemized income, 2023Q1~3, South China Futures handling fee and Commission net income / interest net income / other business income (net method, excluding other business costs) is 441 million yuan, respectively, compared with the same period last year. The proportion of revenue (net method, excluding other business costs) is 47%, 45%, 7%, respectively. Among them, through the 2023Q1~3 South China Futures merger caliber and the parent company caliber itemized income difference, it can be inverted that the net interest income of the overseas subsidiaries of 2023Q1~3 South China Futures is 307 million yuan, which is + 579% last year, accounting for 74% of the net interest income under the merger caliber, which constitutes the main driving force of the company's performance growth. 2) the high interest rate is the core driver of the increase of overseas net interest income under the background of the expected growth of foreign customer rights and interests and the increase of interest rates by the Federal Reserve. In terms of business scale, as of 2023H1's overseas customer rights and interests of 14.1 billion Hong Kong dollars, + 33.24% compared with the same period last year, 2023Q3 is expected to maintain growth; in terms of interest rates, as of October 13, 2023, the US federal funds rate reached 5.33%. The average interest rate in 2023 was 4.94%, a sharp increase over the same period last year (1.13%).

Market sentiment in futures trading and wealth management has improved, and domestic business income has increased steadily: 1) the trading sentiment has boosted the revenue of domestic futures brokerage business. 2023Q1~3, the trading volume of futures in the whole market was + 6.13% to 425.29 trillion yuan compared with the same period last year, and the net income of handling fees and commissions of the parent company of Nanhua futures was + 4.60% to 310 million yuan compared with the same period last year, with an increase similar to that of market trading. 2) Wealth management business revenue is expected to continue to grow. The scale of 2023H1 South China Futures public offering / asset management business was from + 129% to 270,000,000 yuan, respectively, promoting the company's fund management income / asset management business income from + 73% to 0.28 billion yuan respectively compared with the same period last year. By the end of August 2023, the size of futures management / public offering funds in the whole market is 4% to 0.30 / 28.71 trillion yuan, respectively, compared with + 4% at the end of June 2023, which is expected to drive the growth of South China futures management and public offering business.

Profit forecast and investment rating: the domestic business of South China Futures develops steadily, and the overseas business has outstanding advantages, especially in overseas clearing. Under the background of accelerating the integration of China's futures market with international standards, profitability is expected to be further improved. We maintain our previous profit forecast and estimate that the homing net profit of South China Futures in 2023-2025 will be 380,506x575 million yuan respectively, with a corresponding growth rate of 54.37%, 33.21% and 13.55%, respectively, and the corresponding EPS for 2023-2025 will be 0.62 pesx0.83. 94 yuan, and the current market capitalization will correspond to a 13.25 times of 20.04 PE for 2023-2025, maintaining the "overweight" rating.

Risk tips: 1) stricter regulation of the industry; 2) the Fed cut interest rates more than expected; 3) the development of the domestic futures market is not as expected.