Main points of investment

Citic Construction Capital released its three-quarter report in 2023. In the first three quarters, the operating income and return net profit were 183.84 and 5.691 billion yuan, respectively, compared with the same period last year.-19.0% and-11.6% respectively, compared with the same period last year, the operating income and return net profit were 49.19 and 1.384 billion yuan, respectively, and the month-on-month results were-27.3% and-26.2%, respectively. Weighted average ROE year-on-year-1.66pct to 7.1% Excluding customer funds, operating leverage fell 0.4 per cent to 4.28 times from the start of the year.

The pressure of charging business is a drag on income, and the management expenses continue to grow under the rigid cost. On the revenue side, in the first three quarters of 2023, the company achieved 94.86 yuan and 6.572 billion yuan in fee and capital business income respectively, which was-10.2% and + 7.6% respectively compared with the same period last year. The decline in fee income was mainly due to light trading and the slowdown in equity financing, which led to the poor performance of brokerage and investment banking business, and investment income became the core pillar of revenue. On the cost side, the management fee is + 2.1% to 8.475 billion yuan compared with the same period last year, driving the management expense rate from + 2.62pct to 51.9% year-on-year, and the credit impairment loss is reversed to 23 million yuan. The overall asset quality is sound.

Investment bank revenues are constrained by the slowing pace of equity financing, but the lead is solid in terms of project reserves. In terms of fee-based business, the net income of brokers, investment banks and asset management was 43.24,38.93 and 950 million yuan respectively, which was-5.5%,-14.8% and + 29.9% respectively compared with the same period last year. Trading activity returned to the doldrums in the third quarter. Stock turnover in the first three quarters was-6.5% year-on-year. The relative soundness of the company's brokerage income stems from the deepening of the transformation of wealth management. As of the end of Q2, the number of equity funds held by the end of Q2 was + 2.3% to 72.2 billion yuan. Investment bank revenue fell significantly due to the slowdown in the pace of equity financing. In the first three quarters, the scale of IPO/ issuance / debt underwriting was-18.5% and 18.9% respectively compared with the same period last year. However, as of October 26, the company's equity financing declaration ranked second in the industry. IPO has 27 projects under review and is rich in project reserves. The growth of asset management income benefited from the continuous progress of the transformation of active management, and the scale of asset management of the company fell only slightly by 0.3% in the first half of the year compared with the same period last year.

The steady expansion of financial assets promotes the contribution of investment income. In terms of capital business, the net interest income and investment income were 15.08 yuan and 5.064 billion yuan respectively,-15.3% and + 17.1% respectively compared with the same period last year. The decline in net interest income was mainly due to the sale of repurchase financial assets and a sharp increase in short-term financing payable compared with the same period last year, resulting in an increase of 19.3% in interest expenditure compared with the same period last year, while interest income increased by only 10.5% in the same period. Investment income benefited from a low base in the first quarter of last year and positive growth in the expansion of financial assets. By the end of the third quarter, the company's financial assets were + 7.5% to 277.381 billion yuan higher than at the beginning of the year. At the same time, the company made great efforts to lay out its derivatives business. As of the end of 2022, the nominal principal of 23H1 derivatives was + 22.1% to 724.2 billion yuan.

We believe that the company is under pressure in the short term due to the shrinking performance of equity financing. in the long run, its investment banking label is distinct, and it is optimistic that the company relies on strong business strength to realize performance growth under the background of strengthening the trend of concentration of investment banking business. The company's 2023-2024 net profit is expected to be 76.38 yuan and 8.872 billion yuan respectively, + 1.7% and + 16.2% respectively compared with the same period last year. The PB valuation corresponding to the closing price on October 26 is 2.48 and 2.23 times, respectively, maintaining the "overweight" rating.

Risk hints: capital market volatility risk, macroeconomic downside risk, market share increase less than expected risk, new business promotion less than expected risk.