Incidents: The company recently released its 23Q3 quarterly report. 23Q1-3 achieved operating income of 12.622 billion yuan, an increase of 8.96% over the previous year; adjusted operating income (minus other business costs) was 4.458 billion yuan, an increase of 12.82% over the previous year; net profit of 1,330 billion yuan, an increase of 15.05% over the previous year.
Among them, 23Q3 achieved operating income of 4.166 billion yuan, a year-on-year increase of 1.11%; adjusted operating income of 1,254 billion yuan, a year-on-year decrease of 14.41%; and net profit of 419 million yuan, a year-on-year decrease of 2.31%.
Self-management, investment banks, and futures are driving growth, while brokerage and asset management are dragging down performance. Judging from the growth contribution, investment income and investment banking business contributed 44.45% and 30.74% of the adjusted revenue growth, respectively, while brokerage business and asset management business contributed -26.53% and -15.12% respectively, offsetting some of the growth. Furthermore, in the net income from fees and commissions, revenue other than the above mentioned businesses increased year-on-year, contributing a 45.53% increase in revenue, which is expected to be brought about by the growth in futures brokerage business.
Proprietary businesses have expanded in scale, and a bullish market has boosted yield. The investment income of 23Q1-3, including income from changes in fair value, was $902 million, up 33.25% year over year. In terms of scale, the company's financial investment at the end of 23Q3 was 49.929 billion yuan, an increase of 12.45% over the previous year. In terms of yield, the company may benefit mainly from the bullish trend in the bond market. It is expected that the overall yield of credit bond investment will increase.
The investment banking business grew rapidly, and its market share increased markedly. The investment banking business revenue of 23Q1-3 was 677 million yuan, an increase of 29.89% over the previous year. According to Wind data, as of November 10, '23, the company's equity underwriting market share was 1.08%, ranking 19th, up 0.61 pct and 9 places from the full year of '22; the market share of corporate bond underwriting was 1.10%, ranking 19th, up 0.29pct and 3 places from the full year of '22. As future IPOs are unfrozen, the company may continue to take advantage of its location to achieve further development.
Net interest income remained stable, and brokerage and asset management businesses were under downward pressure. The net interest of 23Q1-3 was 568 million yuan, a slight increase of 0.21% over the previous year. Brokerage and asset management business revenue was 1,323 million yuan and 258 million yuan respectively, down 9.22% and 22.86% year-on-year respectively. According to the company's statement on October 27, the company's fixed increase of 8 billion yuan has been approved by the State Assets Administration Commission. According to the fixed increase plan, 4 billion yuan will be invested in investment and trading business, and 2.5 billion yuan will be invested in capital intermediation business to support future business development.
In the current environment where approval of fixed increases in the securities industry as a whole is being tightened, the adoption of this fixed increase will help the company expand its capital and gain an advantage in competition.
Profit forecast and investment advice: Zhejiang has rich superior companies and high-net-worth customer resources, and market recovery is expected to improve brokerage and asset management business. We expect the company's net profit from 2023-2025 to be 19.34, 22.76, and 2,537 billion yuan respectively, with year-on-year growth rates of 16.92%, 17.67%, and 11.47%, respectively. EPS is 0.50, 0.59, and 0.65 yuan/share respectively. The corresponding PE for 2023 is 20.61x, which is upgraded to a “buy” rating.
Risk warning: Market fluctuations lead to fluctuations in independent business income, business scale expansion falls short of expectations, and tightening of regulatory policies