Event: The company recently released its report for the third quarter of 2023, achieving operating income of 1,477 billion yuan, an increase of 2.03% over the previous year, net profit of 208 million yuan, an increase of 103.12% over the previous year, and an EPS of 0.04 yuan. Results for the first three quarters rose and then fell. Q3 achieved revenue of 432 million yuan in a single quarter, -25.92% over the previous quarter.

The self-operated business grew resilient, and the core business rebounded slightly from 2022. As of the mid-year report of 2023, the company's self-operated, securities brokerage, credit, and futures brokerage businesses achieved revenue of 3.48, 3.29, 2.07, and 139 million yuan respectively, up 134.04%, 11.95%, 2.22%, and 23.13% over the previous year; 1) The self-operated business performed well. The company has implemented a neutral equity investment strategy, increased the scale of OTC derivatives investment, and at the same time made effective use of market shocks in the bond market to manage risk and amplify profits. It is expected that in the future, it will continue to promote the transformation and upgrading of equity business and enhance operational capacity; 2) The stability of the securities brokerage business is expected. Affected by fluctuations in the stock market, the slowdown in recovery, and the decline in industry brokerage fees, the total number of the company's securities brokerage business customers was 2,901,900, up 10.32% from the beginning of the year. Financial product sales were 4.686 billion yuan, down 11.50% from the beginning of the year; 3) The scale of the two financial services increased steadily. In the first half of the year, the Liangrong market operated smoothly. The company's balance of Liangrong reached 6.932 billion yuan, an increase of 1.83% over the beginning of the year; 4) The futures brokerage business developed steadily. In the first half of the year, the cumulative transaction volume and transaction value of the futures brokerage business in the Central Plains increased by 49.28% and 17.14% over the same period last year.

The gross profit of the investment banking business continued to shrink, and asset management revenue fell short of expectations due to stock price fluctuations. 1) Investment banking business development is limited. As of the 2023 interim report, the investment banking business has achieved revenue of 23 million yuan, -80.78% year-on-year. The total underwriting amount of the company's equity owners in the Shanghai and Shenzhen markets was RMB 576 million, or -55.56%; the total underwriting amount of debt owners was RMB 3,018 billion, +45.59% over the same period last year. The overall gross margin of the investment banking business in the first half of 2023 was -4,084.27%; 2) The scale of asset management increased, and revenue declined. The company's asset management fee revenue for the first three quarters was 0.4 billion yuan, +18.97% year-on-year, due to the total asset management scale of 4.952 billion yuan in the first half of the year, +39.97% year-on-year, and the fund management fund size of Zhongding Open Source and its subsidiaries was 5.699.5 billion yuan, +23.92% year-on-year. The total revenue of the asset management business reached a total of 32 million yuan in the first half of the year, -30.49% year-on-year. The main reason was the impact of stock price fluctuations in the secondary market of some projects, which led to a sharp decline in the fund's net assets. 3) Overseas business rebounded slightly, with revenue of 115 million yuan, +120.49% over the same period last year.

In summary, in the context of the trend of digitalization and specialization of wealth management in the industry, the company is expected to consolidate the advantages of self-operated business, and there is broad scope for future development. We expect the 2023-2025 EPS to be 0.08/0.10/0.11 yuan, respectively, and the corresponding PE for 2023 to be 47.12x, giving it an “increase in holding” rating.

Risk warning: macro market fluctuations; policy change risk; default credit risk; interest rate risk.