[Event] Yongan Futures announced results for the first three quarters of 2023:1) Revenue for the first three quarters was 18.8 billion yuan, or -34.4%; net profit was 560 million yuan, +18.3%; corresponding to EPS of 0.38 yuan, ROE 4.6%, +0.58pct year-on-year. 2) Q3 had quarterly revenue of 6.8 billion yuan, -25.0% year-on-year.

Net profit of the mother was 150 million yuan, -6.1% year-on-year, and the decline was significantly narrower than in Q2. 3) The net assets of the mother were 12.3 billion yuan, +3.3% over the beginning of the year and +1.1% over the middle of the year.

Revenue: Net income from handling fees increased significantly in Q3, and the decline in investment income is expected to be the main reason for the decline in profit in a single quarter.

1) Net fee revenue: The first three quarters were 580 million yuan, -7.2%; the Q3 quarter was 230 million yuan, +13.9% year-on-year. We expect the quarterly growth to be mainly affected by the recovery in futures market transactions. The domestic futures market turnover and turnover in the Q3 single quarter were +31.7% and +13.9%, respectively. 2) Net interest income: The first three quarters were 480 million yuan, +13.3% year-on-year; the Q3 quarter was 160 million yuan, +3.5% year-on-year. 3) Investment income: 190 million yuan in the first three quarters, -54.6% year-on-year; Q3 was -130 million yuan in the single quarter, 150 million yuan in the same period last year. We expect that the decline in the company's profit in Q3 in a single quarter was mainly affected by the decline in investment income.

4) Other business revenue (mainly revenue from sales of goods from base-difference trading): -36.0% year-on-year in the first three quarters and -26.3% in the Q3 quarter. The decline was narrower than in the first half of the year. We expect the company's risk management business, especially the overall scale of base difference trading, to still shrink.

Expenses: The share of total expenses has improved. 1) The total expenditure for the first three quarters was 18.1 billion yuan, -35.5% year-on-year, and the share of total revenue decreased by 1.6 pct year-on-year. Q3 Total expenditure was -25.4% yoy, accounting for -0.5pct of total revenue. 2) Business and management expenses: -1.1% year-on-year in the first three quarters, -8.0% in Q3. 3) Asset impairment: Credit asset impairment losses were -0.3 billion yuan, compared to 500 million yuan for the same period in '22; impairment losses on other assets were -75% to 150 million yuan. We expect that this is mainly due to a decrease in inventory size due to a decrease in base difference trading business volume and stable spot prices. 4) Other business costs (mainly sales costs of goods traded with basis differences) were -35.3% year-on-year in the first three quarters and -24.3% in the Q3 quarter, mainly due to a corresponding decrease in the scale of risk management business.

Maintain a “better than the market” rating. We believe that as the leader in the domestic futures industry, Yongan Futures is expected to gain momentum for continuous growth in the rapid development of the industry, and with the increase in industry concentration, the company's leading edge will be further consolidated, and it should enjoy a leading premium. We gave the company 32-33x 2023E PE, corresponding to a reasonable value range of 17.51-18.05 yuan. The current stock price corresponds to 29x 2023E PE, maintaining the “superior to the market” rating.

Risk warning: Commodity price fluctuations have exceeded expectations, and domestic futures market regulatory policies have changed.