Matters:

Recently, many private equity institutions have exploded, and brokerage firms, as custodians, have also aroused market concerns. Since investment risks broke out in Beijing Huasoft New Dynamics Private Equity Fund Management Co., Ltd. (hereinafter referred to as “Huasoft New Dynamics”) on November 14, the Securities Regulatory Commission has organized the Securities Regulatory Bureau, the Fund Industry Association, etc. to carry out inspections to initially determine that many institutions are suspected of multiple levels of nested investment. There are various problems. Currently, “thundermining” trust products have been disclosed, with a single subscription scale exceeding 100 million yuan. On November 24, the Securities Regulatory Commission announced the filing of investigations against private equity institutions such as Hangzhou Yuyao (Hangzhou Yuyao Private Equity Fund Management Co., Ltd.) and Shenzhen Huisheng (Shenzhen Huisheng Private Equity Fund Management Co., Ltd.) to strictly deal with illegal and irregularities.

Guoxin African Bank's view: Judging that supply-side reforms in the private equity industry have intensified. After the big wave, leading private equity firms chose custodian brokerage firms with strong comprehensive service capabilities and perfect systems; China Merchants Securities, which have an advantage in the PB (Prime Brokerage, or lead broker) business, will benefit, and the share of private equity institutions will increase.

We expect the company's net profit for 2023-2025 to be 10.13 billion yuan, 11.52 billion yuan, and 13.555 billion yuan respectively, up 25.4%/13.5%/17.9% year on year. The PE corresponding to the current stock price is 12.6/11.1/9.4x and PB is 1.0/1.0/0.9x, maintaining the “increased holdings” rating for the company.

Risk warning

Market volatility risk, business innovation risk, regulatory policy change risk, and increased market competition risk.