Guoxin Securities released three quarterly reports for 2023, with revenue and net profit of 124.43 yuan and 4.874 billion yuan respectively during the reporting period,-6.5% and + 2.3% respectively compared with the same period last year, and revenue and net profit of 42.35 yuan and 1.284 billion yuan respectively in the third quarter alone, compared with + 4.7% and-29.5% respectively. Weighted average ROE year-on-year-0.71pct to 4.5%; excluding customer funds, operating leverage is 3.26 times, up 4.0% from the beginning of the year.

Capital business contributes to the increment of performance, and the cost expenditure is rigid. On the revenue side, the company achieved 49.39 and 6.393 billion yuan in fee and capital business income in the first three quarters of 2023 respectively, which was-14.8% and + 15.8% respectively compared with the same period last year. The decline in fee business income was mainly due to the decline in brokerage business income caused by light market trading, as well as the pressure on investment banking business under the slowdown of equity financing. The growth of capital business income was jointly driven by the stabilization of the bond market and equity market. On the expenditure side, the company's management expenses are from + 2.6% to 5.847 billion yuan compared with the same period last year, the management expense rate is from + 1.29pct to 51.4% year-on-year, and the credit impairment loss is 187 million yuan.

The income of the brokerage business is under pressure, and the asset management business breaks through against the trend. In terms of fee-based business, the company's net income from brokerage, investment banking and asset management in the first three quarters of 2023 was 32.97,10.96 and 349 million yuan, respectively, compared with the same period last year. In the first three quarters, the turnover of A shares in the market was-6.5% compared with the same period last year, and the net income of the company's brokerage business decreased significantly, mainly due to a decline in commission rates and a decline in net income from consignment sales under the weakness of newly issued funds. however, the amount of securities bought and sold by the company's agents increased against the trend, from + 1.0% to 53.648 billion yuan by the end of September 2023. The scale of the company's stock and bond underwriting has increased. In the first three quarters, the company's IPO/ refinancing / bond underwriting scale was + 4.8% Universe 23.4% Universe 13.5%. The net income of the investment bank declined or due to the downward trend of investment banking project rates. As of October 27, 2023, the company had 8 IPO queued projects. The company's asset management income is growing against the trend, and the management scale of its Penghua fund non-goods fund is basically the same as at the beginning of the year, and the scale of equity and bond funds is-10.6% and + 7.3% respectively compared with the beginning of the year.

The expansion of bond investment brings interest income, and the income of proprietary investment increases under the stabilization of the market. In terms of capital business, the company realized net interest income and investment business income of 14.99 yuan and 4.894 billion yuan respectively in the first three quarters of 2023, + 9.5% and + 17.8% respectively compared with the same period last year. In the first three quarters, the scale of other debt investment increased by 30.7% to 67.3 billion yuan compared with the beginning of the year, leading to an increase of 5.1% in interest income and 3.6% in interest expenditure over the same period. With the capital market stabilizing the expansion of investment scale of superimposed financial assets, the company's proprietary investment income increased significantly, which provided a strong support to the company's performance. By the end of September 2023, the company's financial assets increased by 14.9% to 254.5 billion yuan compared with the beginning of the year.

The advantage of the company's brokerage business is solid, and it is optimistic that the company will focus on the balance sheet business on the basis of consolidating the basic stock of the brokerage business, so as to achieve the promotion of ROE. We expect the company's 2023-2024 net profit to be 68.92 and 7.721 billion yuan, respectively. The closing price on October 27, 2023 corresponds to 1.12 and 1.02 times of PB, respectively, compared with the same period last year.

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