Haimatong RY# Securities released its three-quarter report for 2023. The first three quarters achieved operating income and net profit of 225.74 billion yuan and net profit of 4.362 billion yuan, respectively, a year-on-year difference of +19.2% and -28.2%; Q3 achieved operating income and net profit of 5605 million yuan and 532 million yuan, a month-on-month difference of -33.6% and -61.9%, respectively; weighted average ROE -1.08 pct to 2.6%; operating leverage after excluding client capital was -3.0% to 3.48 times higher than at the beginning of the year.

The charging business is under significant pressure, and the sharp increase in credit impairment losses has dragged down profits. On the revenue side, in the first three quarters of 2023, the company achieved revenue of 74.33 billion yuan and 7.151 billion yuan from fee-type and capital business respectively, -20.2% and +37.3% year-on-year respectively. The overall performance of the fee-related business was poor, and investment income increased dramatically under a low base to improve performance. On the cost side, management expenses were +3.9% year over year to 8.612 billion yuan, driving the management fee rate to +2.09 pct to 52.4% year on year, and credit impairment losses increased sharply by 223.5% year over year to 1,464 billion yuan, further dragging down profits.

Overall revenue from asset-light business declined, and the underwriting scale of investment banks maintained strong resilience. In terms of fee-related business, the net income of brokerage, investment banking and asset management was 28.73 billion yuan, 30.11 billion yuan, and 1,427 billion yuan respectively, compared to -20.8%, -19.9%, and -15.4% year-on-year respectively. The brokerage business followed the market. Stock turnover in the entire market in the first three quarters was -6.5% year-on-year, and corporate brokerage securities transactions fell 6.4% from the beginning of the year. The decline in revenue was greater than the decline in turnover and is expected to be constrained by falling commission rates and the slump in consignment sales business due to weak new development funds. The investment banking business implemented “regionalization” and “specialization” strategies to achieve a steady increase in underwriting scale. The company's IPO/additional/bond underwriting scale in the first three quarters was +32.2%/+80.4%/+29.6% year-on-year, respectively. The decline in asset management revenue is expected to be due to a contraction in asset management scale due to poor investor subscription sentiment. As of the end of Q3, the size of Hyfutong Fund's stock+hybrid funds was -29.6% year-on-year to 26.539 billion yuan.

Investment income increased significantly under a low base and stabilized performance. In terms of capital business, net interest income and investment income were 32.73 billion yuan and 3.878 billion yuan respectively, with a year-on-year difference of -30.9% and +721.4%, respectively. By the end of Q3, the company's purchases and resale of financial assets and debt investments were +2.8% and +22.9% respectively compared to the beginning of the year, driving interest income on financial assets by +9.2% year-on-year. The decline in net interest income was mainly due to a decrease in financial leasing income and a sharp increase in loan interest expenses. The investment business benefited from the increase in the scale of financial assets and significant improvements in capital market stability. As of the end of Q3, the company's financial assets were +3.3% compared to the beginning of the year to 283,532 billion yuan.

Haitong Securities thoroughly implements the “One Haitong” concept and deepens collaboration between “investment, finance, insurance, research” and wealth management business lines. It is expected that the Group will rely on the advantages of its integrated financial platform to support performance growth. The company's net profit for 2023-2024 is estimated to be 63.08 billion yuan and 8.380 billion yuan respectively, -3.6% and +32.9% year-on-year respectively. The PB valuation corresponding to the closing price on November 13 is 0.78 and 0.75 times, respectively, maintaining the “increased holding” rating.

Risk warning: the risk of large fluctuations in the capital market, the risk of macroeconomic downturn, the risk that the market share increase falls short of expectations, and the risk that the promotion of new business falls short of expectations.