Incidents: The company recently released its report for the third quarter of 2023. 23Q1-3 achieved operating income of 1,856 billion yuan, a year-on-year decrease of 38.31%, mainly due to a decrease in the scale of trade business in the industrial sector; net profit of 150 million yuan, which turned a loss into a profit year on year, mainly due to: 1) The subsidiary Xiangcai Securities's various businesses developed steadily, and the operating performance of its own business, investment banks and their subsidiaries increased significantly compared to the same period last year; 2) The participating company Daizhi confirmed that litigation compensation revenue increased the company's net profit under equity law accounting. Q3 The company achieved revenue of 566 million yuan in a single quarter, a year-on-year decrease of 11.09%, and net profit of 13 million yuan, turning a year-on-year loss into a profit.

The securities business developed steadily, and net profit from the mother increased year on year. 23H1 Xiangcai Securities achieved revenue of 886 million yuan, the same as the same period last year, and net profit of 175 million yuan, up 386.12% year on year. It is expected to be mainly driven by self-operated business. 23H1 Xiangcai Securities's self-operated revenue was 184 million yuan, a sharp correction from -06 million yuan in the same period last year. Furthermore, as of 23H1, the Xiangcai Fund has managed a total of 4.21 billion yuan in public assets, an increase of 51.93% over the previous year, and the scale has grown rapidly.

The quality of proprietary assets is stable, and various risk indicators are excellent. The self-operated business of Xiangcai Securities is divided into the Equity Investment Department, FICC and the Innovation Investment Department. The total number of employees is about 60, and the core members of each sector are stable. Among them, the total equity investment scale is limited to less than 1 billion yuan; FICC's total business scale is about 8 billion yuan, including 6 billion yuan of AA grade and above city investment bonds, 2 billion yuan of notes, and a small amount of convertible bonds; and innovative investment businesses include financial derivatives and quantitative transactions. As of 23H1, the risk coverage rate of Xiangcai Securities was 443.47%, and the scale of the securities pledged repurchase business had dropped to 10 million yuan, maintaining an average guarantee ratio of 1595.62%, and the risk level was low.

Profit forecasting and investment advice: As the Matthew effect in the industry intensifies, we are optimistic that the company will gradually focus on the main financial business, divest inefficient sectors, use technology to empower financial business development, and accelerate transformation to form a characteristic competitive advantage, which is expected to further improve operating efficiency and profitability. It is estimated that the company's net profit from 2023-2025 will be regularized/ +45.89%/+20.16% respectively. The corresponding PE is 128.58x/88.14x/73.35x, covering the “increased holdings” rating for the first time.

Risk warning: Securities business falls short of expectations; capital market fluctuations; declining commission rates; credit risk; litigation involves reputational risk, etc.