The event company recently released its Q3 quarterly report for 2023, with operating income of 4.848 billion yuan, down 6.94% from the same period last year, and net profit of 298 million yuan, an increase of 126.21% compared with the same period last year.

Net interest income drives a high increase in income, and the performance of overseas business is outstanding. In the itemized business, 2023Q1-Q3 realized net fee and commission income, net interest income, investment income and other business income (net method, excluding other business costs) 4.41,4.15,1.80 and 62 million yuan, compared with the same period last year. Among them, overseas business is the main driving force of performance growth, and the growth is mainly due to the continuous expansion of business scale and service optimization.

If the consolidated statement is reduced by the statement of the parent company, the net income of overseas interest can be obtained. The net income of domestic and overseas interest of the company in the first three quarters is 1.08yuan and 307 million yuan, contributing 26% and 74% of the total net interest income respectively.

The increase in interest rates by the Federal Reserve and the growth in the rights and interests of overseas customers have contributed to the continued expansion of overseas business. 1) the process of raising interest rates by the Federal Reserve continues. As of October 19, the US federal interest rate rose by 73.05% over the same period last year, from 3.25% to 5.33%. High interest rates contributed to the growth of net interest income from overseas financial products. 2) the customer rights and interests and the scale of asset management have increased significantly: as disclosed in the 2023 interim report, the total customer rights and interests of securities, futures, foreign exchange and other brokerage business in overseas financial services business was HK $14.094 billion, an increase of 33.24% over the same period last year; the scale of overseas asset management business was HK $2.522 billion, an increase of 73.93% over the same period last year.

The brokerage business has made steady efforts, and the market share continues to increase. From the perspective of the industry, affected by homogeneous competition, the downward trend of brokerage commission rate in the industry remains unchanged, the industry is in the stage of capacity expansion, and the national futures trading volume and amount are rising steadily. The company's brokerage business performance stabilized. As disclosed in the mid-2023 report, the company's domestic futures brokerage client rights and interests were 21.114 billion yuan, an increase of 2.85% over the same period last year, and futures brokerage fee income was 237 million yuan, an increase of 7.37% over the same period last year. The policy continues to promote industry transformation and innovation, and the international layout is expected to consolidate the company's leading position in the futures market and further increase the market share of futures trading volume. On the cost side, the company's operating expenses fell 10.55% in the first three quarters compared with the same period last year, transaction costs were reduced, and profitability was significantly improved.

With the advantages of international layout and complete clearing system, overseas business will become an important growth point in the first three quarters under the background of Fed interest rate hike. Therefore, we expect the company's operating income from 2023 to 2025 to be 90.15 yuan, 110.78 yuan and 11.978 billion yuan respectively, with year-on-year growth rates of 32.14%, 22.87% and 8.12%, respectively. The net profit of homing was 4.13,5.17 and 619 million yuan respectively, with year-on-year growth rates of 67.92%, 25.17% and 19.66%, respectively. EPS is 0.68,0.85,1.01 yuan per share respectively. With reference to comparable company valuations, we gave the company 18.88 times PE in 2023, giving it a "buy" rating for the first time.

Risk tips: the downward adjustment of industry commission rates has an impact on brokerage business; changes in the regulatory environment at home and abroad and in the futures industry; and uncertainties such as international commodity prices and exchange rates.