Matters:
On January 11, 2024, Fangzheng Securities issued 3 billion yuan of corporate bonds. In the past year, Fangzheng Securities issued a total of 161 billion yuan of corporate bonds and 3.5 billion yuan of subordinated bonds.
Commentary:
Excluding 22 Fangzheng F2, which expires on April 28, 2023, the company's bond issuance scale increased net by 18.85 billion yuan in the past year, which is 42% of the company's 23Q3 net assets. In the use of securities companies' balance sheets, after issuing securities company bonds to obtain capital, brokerage firms often allocate two loans or proprietary assets, and then sell and repurchase financial assets by re-pledging the two loans, thus achieving a secondary increase in leverage.
As of 23Q3, the company's leverage ratio had recovered from being significantly lower than the industry to close to the industry average. As of 2023Q3, the company's total assets after excluding customer capital reached 162.5 billion yuan (+16% compared to the beginning of the year), and the leverage ratio increased to 3.62 times (+0.36 times compared to the beginning of the year). Referring to the average leverage ratio of the industry at the end of 2022, the company's leverage ratio has risen significantly below the industry to close to the industry average. In the first three quarters, the company issued a total of 8.85 billion yuan in bonds, generating a total asset increase of 22.2 billion yuan (excluding customer capital), corresponding to a 2.5 times increase in total assets issued per unit.
Since October 2023, the scale of the company's bond issuance has continued to increase, and we are optimistic about the ROE core growth brought about by the increase in the leverage ratio. Since October, the company has issued a total of 10 billion yuan of corporate bonds. If the size of newly issued bonds increases 2.5 times, it is expected that the total asset size of the company will increase further significantly, and the estimated leverage ratio is expected to rise to 4.2 times. That is, since the beginning of 2023, the company's total leverage ratio has increased 0.91 times. Referring to 2019 to 2022, the average ROA for the company period was 1.2%, and the average ROE was 3.7%. If calculated linearly as the pivot value, the company's ROE center may have increased by 1.09pct (1.2% ROA*0.91 times leverage). Furthermore, considering that the company was affected by Fangzheng Group's risk events from 2019 to 2022, ROA is significantly lower than the industry average, and the actual increase in ROE center may be higher than this number.
Investment advice: Since 2019, due to shareholder risk events, the company's ROA and leverage ratio have been significantly lower than the industry average. After shareholder risk was implemented, the market focused on the collaborative growth space brought about by mergers, acquisitions and restructuring of companies. On the basis of optimism about the collaboration between Ping An and Fang Zheng, we are also optimistic about the obvious increase in the company's leverage and ROA repair space after the company's shareholders' risks are implemented. The company's bond issuance continues to advance rapidly. Currently, the leverage ratio may be higher than the industry average. The next step is to expect the company's ROA to pick up after market sentiment recovers, driving the company's overall ROE to rise. We maintain the company's 2023/2024/2025 EPS forecast of 0.33/0.41/0.49 yuan, BPS of 5.57/5.92/6.33 yuan respectively, corresponding PB of 1.31/1.23/1.15 times, and ROE of 5.89%/6.88%/7.77%, respectively.
We gave the company a PB valuation of 1.5 times its 2024 performance, corresponding to a target price of 8.9 yuan, maintaining a “recommended” rating.
Risk warning: risk of shareholder changes, increasing downward pressure on the economy, reduction of capital holdings in the north, etc.