Core viewpoints
The company's 2023Q3 performance was under pressure as a whole, with an operating income of 4.077 billion yuan, with cumulative revenue of 14.871 billion yuan in the first three quarters, a decrease of-2.79% over the same period last year, and a net profit of 6.402 billion yuan, a slight increase of + 1.93% over the same period last year. Among them, the single-quarter revenue of the investment banking business increased by + 4.40% year-on-year to 299 million yuan in the third quarter. Other business, the company's self-business, net interest income in the first three quarters still achieved year-on-year growth, remained robust. The company's current ROE is 5.82%, and its operating income from 2023 to 2025 is expected to reach 217.34Universe 254.78 / 30.455 billion yuan respectively, corresponding to the PB valuation of 1.13Universe 1.12max, maintaining the buy rating.
Event
On October 26, China Merchants released the results for the third quarter of 2023. The company's cumulative revenue in the first three quarters was 14.871 billion yuan, down-2.79% from the same period last year, and the net profit returned to its mother was 6.402 billion yuan, up slightly by 1.93% from the same period last year. Q3's revenue fell-12.83% to 4.077 billion yuan year-on-year, and its net profit fell-15.95% to 1.675 billion yuan year-on-year.
Brief comment
The brokerage business is still resilient and is expected to be repaired. The year-on-year growth rate of the company's brokerage business revenue in the third quarter is basically in line with the changes in the market, or it is negatively affected by the decline in overall trading volume.
Investment banking business has been gradually improved and the construction of modern investment banking has been accelerated. The company's investment banking revenue in the first three quarters reached 746 million yuan,-31.60% year-on-year; revenue in the third quarter increased by + 4.40% year-on-year to 299 million yuan. Relying on the core competitive advantages of specialization and regionalization, the company raised a total of 95.45 billion yuan in underwriting in the third quarter, an increase of 9.01% over the same period last year, including 1 IPO with an underwriting scale of 1.247 billion yuan and 3 refinancing firms with an underwriting scale of 2.891 billion yuan. The main underwriting scale of bonds was 91.312 billion yuan, ranking 13th, while financial bonds and corporate bonds reached 314.90 yuan and 23.253 billion yuan respectively. With the implementation of the comprehensive registration system, the company will comprehensively strengthen risk control, constantly improve the quality of investment banking practice, and make every effort to promote the high-quality development of investment banking business.
Affected by the fluctuation of the equity market and the decline in customer demand, the asset management business declined in the short term. The revenue of the company's asset management business in the first three quarters reached 549 million yuan,-12.99% year-on-year; revenue in the third quarter alone fell-12.47% to 177 million yuan. Compared with the same period at the beginning of the year, 23Q3 Boshi Fund and China Merchants Fund AUM were-2.8% compared with the same period last year. 7.5% to 939.51 billion yuan / 830.47 billion yuan, respectively, and the management AUM remained relatively stable. The company adheres to the marketing coordination with the parent company, promotes the innovation of strategy and business model, enriches the active management product line, and strives to improve the service level.
Proprietary business performed well in the first three quarters, and derivatives trading is expected to continue to expand. The company's revenue from its own business reached 5.488 billion yuan in the first three quarters. Although the year-on-year decline in revenue in the third quarter-39.60% was a drag on the overall performance, it still increased by + 1.21% compared with 2022. The company continues to focus on the "large and stable" investment goal and actively develop customer demand-driven business and neutral investment strategy. As of 2023Q3, the balance of financial investment assets was 336.314 billion yuan, + 10.85% year-on-year, of which the balance of transactional financial assets was 271.541 billion yuan, + 8.29%. In addition, the company continues to expand the capital intermediary trading business such as over-the-counter derivatives market-making, securities market-making and over-the-counter derivatives. As of 2023Q3, the amount of derivative financial assets reached 5.12 billion yuan, an increase of + 39.71% over the beginning of the year.
In terms of credit business, the company's net interest income increased significantly in the first three quarters. 2023Q3 continued to increase its in-depth cooperation with public funds and actively expand the sources and types of securities. Revenue in the first three quarters reached 1.307 billion yuan, an increase of + 45.22% over the same period last year; revenue in the third quarter alone declined-30.23% to 373 million yuan. In the first half of 2023, China Securities Finance Co., Ltd. reduced the margin ratio of securities companies, optimized the margin trading mechanism on the main board, further improved the efficiency of securities trading, and reduced the business costs of securities companies. We will promote the growth of the scale of securities trading in Shanghai and Shenzhen. By the end of the third quarter of 2023, the margin trading volume of the Shanghai and Shenzhen stock markets was 1.590919 trillion yuan, an increase of + 3.4% over the same period last year. The company's credit business may continue to benefit from institutional reform and increased market trading activity in the future.
Profit forecast and valuation: the company's operating income from 2023 to 2025 is expected to be 217.34 billion yuan, an increase of 13%, 17% and 20%, respectively, and a year-on-year increase of 1%, 6% and 21%, respectively. Based on the closing price on October 26, 2023, the PB valuation for 2023-2025 is approximately 1.13, 1.12 and 1.05 times, maintaining a "buy" rating.
Risk analysis.
Sharp macroeconomic fluctuations, the risk of investment losses: under the repeated disturbance of the epidemic and the expectation of overseas recession, domestic and foreign consumption and investment demand are weak, economic growth is under pressure throughout the year, and the investment business income of the securities industry is subject to the stock and bond market quotations. there may be a risk of profit decline.
The risk of low trading activity in the capital market: the downturn in the capital market may lead to a sharp decline in investor trading activity, thus affecting the commission income of securities companies.
Major policy changes bring uncertainty to the industry: the regulatory policies of the financial industry are complex and changeable, and major changes may take place if the business model and development mode of the securities industry are affected by the new policies.
Legal compliance risk: on September 1, Shenzhen Stock Exchange issued a supervision letter to China Merchants Co., Ltd., and sponsor representatives Lu Yao and Liu Xingde. The above subjects: the non-standard internal control related to the income of the issuer (Shenzhen Dacheng Precision equipment Co., Ltd.) and the basis for income recognition have not been fully verified. The verification procedures for the standardization of accounting and the accuracy of presentation of some accounting subjects of the issuer are not in place. The penalty may have a negative impact on China Merchants's reputation, increase the company's compliance costs and affect profitability.