The brokerage business improved marginally in the third quarter of 2023 due to trading activity, but intense homogenization competition in the futures brokerage business continued. As an industry leader, the company's advantages in traditional business and capital-light business have not changed. It is expected to benefit from industry growth opportunities and maintain its “hold” rating in the future.

Fee income improved marginally in the third quarter, and net profit for the first three quarters increased year on year under a low base. In the first three quarters of 2023, the company achieved operating income of 18.79 billion yuan, -34.4%; of which net fee revenue was 580 million yuan, -7.2% (+6.13% of the turnover of the national futures market in the first three quarters), net handling fee revenue for the third quarter was 230 million yuan, +13.9% year-on-year (Q1 and Q2 were -26.9% and -7.4% respectively); interest income was 480 million yuan, +13.3%; investment income was 190 million yuan, -54.6%; other business income was 17.47 billion yuan , -36.0% compared to the same period last year, mainly affected by the decline in the scale of base difference trading business. Net profit for the first three quarters was 560 million yuan, +18.3% year-on-year, mainly due to declining asset impairment losses and a low year-on-year base. The third quarter achieved operating income of 6.83 billion yuan, -25.0% year-on-year; net profit of 150 million yuan, -6.1% year-on-year; the decline in operating income and net profit was significantly narrower than in the Q2 quarter.

Affected by market fluctuations, the scale of risk management business has shrunk. The company's risk management business includes base difference trading, OTC derivatives, market making, etc. Affected by market factors, the company's other business revenue (mainly risk management business) for the first three quarters of 2023 was 17.47 billion yuan, -36.0% year on year; operating profit from other business was 190 million yuan, -68.6% year on year.

The capital-light business is worth paying attention to. The company's overseas business showed strong growth in the first half of 2023. In terms of capital-heavy business, the company has strong dominance in Zhejiang, a strong futures province, but in a context where homogenized competition in the industry continues to intensify, the market is relatively sluggish, and channel resources are relatively unfavorable, the further upgrading of the heavy capital business is facing challenges. In terms of capital-light business, the company has deployed a wide range of businesses such as asset management, wealth management, and overseas financial services. Although there is still a gap from becoming a new growth extreme, business capacity is gradually accumulating. In the first half of 2023, the company's overseas business achieved operating income of 180 million yuan, +67.5% year-on-year; operating profit of 0.6 billion yuan, +521.1% year-on-year; and the number of accounts opened by overseas institutions increased 1.5 times over the same period last year.

Risk factors: Fluctuations in the futures market affect the profit level of capital-heavy business; there is uncertainty about exchange fee revenue policies; fluctuations in the spot market affect investment income and wealth management business income; overseas business progress falls short of expectations.

Profit forecast, valuation and rating: The first three quarters of 2023 were affected by fluctuations in the capital market, and the company's performance was under pressure. Looking ahead, as the futures and spot markets gradually recover, the company is expected to benefit from industry growth opportunities and maintain its “hold” rating. The first three quarters of 2023 were affected by fluctuations in the futures and spot markets, and the company's performance recovery was under great pressure. We adjusted the 2023E/2024E BVPS forecast to 8.68/9.14 yuan (previous value forecast was 8.96/9.66 yuan), and added the 2025E BVPS forecast to 9.67 yuan. Since the number of listed companies in the industry is still small, comparability is relatively poor. Referring to the company's historical valuation, the average PB valuation of the company in the past year was 2.1x, so the company was given a 2023E 2.1x PB valuation, corresponding to the target price of 18 yuan, maintaining the “hold” rating.