The third listed futures company on A-shares, maintaining a leading position in the industry. After 30 years of development, the company has become one of the largest domestic futures companies with the widest scope of business and the strongest research capabilities. The actual controller of the company is the Zhejiang Provincial Department of Finance, and the largest shareholder, Caitong Securities, is strong.
(1) Strong capital strength and profitability: 23Q3, the company's total assets were 66.544 billion yuan and net assets were 12.343 billion yuan; in the first three quarters, it achieved operating income of 18.797 billion yuan and net profit of 559 million yuan, ranking first in the industry in its main financial indicators.
(2) Diversified business structure: 21 years ago, futures brokerage business was the company's main source of revenue, but in recent years, its share has declined, and the share of risk management revenue has gradually increased. In '22, the futures brokerage business contributed 38.23% (-11.63pct), and the risk management business accounted for 47.60% (+8.63pct year-on-year). For the first time, the risk management business surpassed the futures brokerage business as the largest source of revenue.
As one of the leading companies in the futures industry, it is expected to enjoy the dividends of industry expansion. The current situation of China's futures industry:
The profit scale is small and depends on the brokerage business. In '22, the brokerage business contributed 91.16% to industry revenue, and the contribution of innovative business was low; the concentration of the industry is high and increasing, and the ability of futures companies with a single business to withstand risks may decline, and leading futures companies will have an advantage.
As the homogenization of futures brokerage business intensifies and commission rates across the industry decline, the expansion of trading types and the rise in safe-haven demand are the main reasons for the increase in trading activity and the business development of futures companies: 1) Commodity prices have fluctuated since 22 years, and corporate hedging intentions have increased, so Yongan Futures is expected to seize the needs of physical enterprises to hedge risks and achieve expansion of risk management business. 2) The speed at which new types of futures and options trading are listed is speeding up, promoting the expansion of customer interests throughout the industry.
Accelerate the transformation to a “derivatives investment bank”. The Yongan Futures business system is based on brokerage business, with risk management and wealth management business as two wings. In '22, the company formulated the “14th Five-Year Plan” development strategy, and clearly positioned the strategy to build a “derivatives investment bank” and change from a comprehensive service provider to a trader. 1) Brokerage business:
The company has significant location advantages in Zhejiang Province. The number of business outlets is the highest in the country, and the market share of domestic agency turnover is superior to that of its peers. Brokerage clients are mainly institutional clients, and bargaining power is strong, resulting in a low commission rate for the company.
Higher agency turnover compensates for the negative impact of lower commission rates. 2) Risk management business: Exhibited by subsidiary Yongan Capital, long-term operations have accumulated risk management capabilities, leading the industry in business scale and revenue. 3) Wealth management business: The turnover of personnel brings business instability, but the company's talent training mechanism is gradually being formed, and now the business is gradually picking up. At the same time, the company is committed to finding outstanding private equity fund managers, and fund consignment revenue is growing rapidly.
Investment advice: As of 2023/12/8, Yongan Futures PB is 1.90X, PE is valued at 30.68X. Since China's futures industry is currently mainly asset-light business, the PE valuation method is used for valuation. Considering the growth brought about by industry expansion, we gave the company 2023/2024/2025 EPS expectations:
0.55/0.68/0.81 yuan, corresponding to PE 29.23/23.64/19.85 times, respectively. Compared with some listed futures companies in the same industry, Nanhua Futures unanimously expected PE to be 14.45 times and Ruida Futures 23.21 times in 2024.
Referring to comparable companies, considering that Yongan Futures has steady performance as an industry leader and can enjoy the dividends of the industry's continuous expansion, we gave Yongan Futures a PE valuation of 29 times its 2024 performance, corresponding to the target price of 19.63 yuan, covering the first time, and giving it a “recommended” rating.
Risk warning: capital market fluctuations; declining commission rates for futures brokerage; uncertainty about exchange revenue reduction.