In the first three quarters of 2023, Pacific Securities achieved operating income of 1.03 billion yuan, a year-on-year increase of 3.4%; net profit of 250 million yuan, a year-on-year increase of 320 million yuan; and diluted ROE of 2.56%, an increase of 3.31 percentage points over the previous year. Judging from the overall performance during the year, profit growth was mainly due to the low base effect brought about credit impairment losses of 300 million yuan centrally calculated in Q2 2022. Looking at a single quarter, net profit for Q2/Q3 continued to decline month-on-month, but asset-light business performance was relatively stable. In September 2023, the Securities Regulatory Commission officially accepted the application of Pacific Securities to change the largest shareholder to Huacheng Securities. The collaboration between the two brokerage firms is expected to increase business.

2023Q3 profit continued to decline month-on-month, with net profit of 251 million yuan per quarter. In the first three quarters of 2023, Pacific Securities achieved operating income of 1,035 billion yuan, an increase of 3.38%; net profit of 251 million yuan, an increase of 315 million yuan; current EPS of 0.04 yuan/share, compared with -0.01 yuan/share for the same period last year; and diluted ROE of 2.65%, an increase of 3.31 percentage points over the previous year. BVPS vested in common shareholders at the end of the period was $1.39, up 2.96% from the beginning of the year. Looking at the single quarter, the net profit of 2023Q3 continued to decline month-on-month. The revenue for the 2023Q1/Q2/Q3 quarter was 466 million/282 million/286 million yuan, respectively, and the net profit for the single quarter was 149 million/61 million/41 million yuan, respectively.

Investment business: Investment income rebounded month-on-month, and the scale of investment fell.

In the first three quarters of 2023, the company's net investment income+fair value change income excluding joint ventures was 375 million yuan, an increase of 1.14% over the previous year. On a quarterly basis, total investment income for 2023Q1/Q2/Q3 was $256 million, $48 million, and $71 million, respectively. Q3 rebounded 49% month-on-month. Looking at the scale of investment, the company's investment asset scale has declined. As of the end of 2023Q3, the financial investment scale was 5 billion yuan, down 12% from the end of Q2.

From a risk perspective, the company's main risk exposure is bond investment, and the overall exposure is low: as of the end of 2023H1, the investment scale of corporate bonds was 4 billion yuan, accounting for 71% of the financial investment scale; proprietary equity and fixed income securities accounted for 2.82% and 67.18% of net capital, respectively, which was significantly lower than the average of comparable companies.

Brokerage & Credit Business: The performance of the brokerage business is rising steadily, and the credit business is small in scale and risk is manageable.

In terms of brokerage business, the company achieved net brokerage revenue of 261 million yuan in the first three quarters of 2023, a year-on-year decrease of 11.69%. On a quarterly basis, the net income from brokerage fees in the first three quarters was 884/085 million /91 million yuan, respectively. The month-on-month performance was steady and progressive, and was not affected by the cold market trading in the third quarter.

In terms of credit business, in the first three quarters of 2023, the company achieved net interest income of 224 million yuan, an increase of 29.52% over the previous year. On a quarterly basis, 2023Q1/Q2/Q3 net interest income was 60 million/97 million/67 million yuan respectively. Fluctuations in net interest income mainly stem from interest income, while interest expenses were relatively stable. Judging from the risk level, the overall scale of the company's credit business is small and the risk is relatively manageable: as of the end of H1 2023, the balance of the company's securities financing business was 1,721 billion yuan, down 2.44% from the beginning of the year; the average maintenance guarantee ratio was 296.91%, higher than the industry average.

Investment banking & asset management business: The scale of equity business has declined a lot, and the scale of asset management has declined somewhat.

In terms of investment banking business, in the first three quarters of 2023, the company achieved net income from investment banking business of 92 million yuan, an increase of 33.55% over the previous year. On a quarterly basis, the net income of investment banks in 2023Q1/Q2/Q3 was 39 million/021 million/032 million yuan, respectively. In terms of business scale, according to Wind's issuance day statistics, the company's equity underwriting scale for the first three quarters was 400 million yuan, compared to 1.4 billion yuan for the same period last year; the bond underwriting scale was 10.5 billion yuan, compared to 6.4 billion yuan for the same period last year.

In the first three quarters of 2023, the company achieved net revenue from asset management business fees of 76 million yuan, a year-on-year decrease of 18.21%. Q3 The net revenue of asset management business in Q3 was 225 million yuan in a single quarter, down 23.07% from the previous month. As asset securitization products successfully completed maturing payments in the first half of the year, the scale of assets managed by fiduciary management declined: as of the end of 2023H1, the company's asset management scale was 13.3 billion yuan, down 19% from the beginning of the year.

Risk factors: A share turnover has declined sharply; the company's credit business risks have been exposed; the company's investment losses; changes in the company's equity structure have fallen short of anticipated risks; and the company's operating risks.

Profit forecast: Considering factors such as market trading conditions and the gradual implementation of active capital market policies, we adjusted the Pacific 2023/2024 EPS forecast to 0.05/0.05 yuan (the original forecast for 2023/2024 EPS was 0.01/0.01 yuan), added the 2025 EPS forecast to 0.06 yuan; adjusted the Pacific 2023/2024 BVPS forecast to 1.40/1.45 yuan (the original forecast for 2023/2024 BVPS was 1.42/1.44 yuan) , the new 2025 BVPS forecast is 1.51 yuan. In September 2023, the Securities Regulatory Commission officially accepted the administrative license application for Pacific Securities to change the largest shareholder of Pacific Securities to Huacheng Securities. The collaboration between the two brokerage firms is expected to further expand their location advantages and customer resources in the southwest region and bring about business growth. Pacific's current PB is 2.9 times, which is 1.9 times higher than the average PB of the four comparable companies Caida Securities, First Venture, Nanjing Securities, and Hongta Securities, mainly due to the valuation premium expected from the merger event.