Incident: Caitong Securities announced a pre-increase in its 2023 results. The net profit for the full year is estimated to be 21.3-2.36 billion yuan/yoy +40%-55%, slightly higher than our previous expectations (performance outlook is estimated at 1.99 billion yuan/yoy +31%).
The annual profit growth rate is better than that of peers. Among them, 4Q quarterly profit is expected to be +43% to 95% year-on-year. The company's 2023E net profit increased sharply, which is significantly higher than the brokerage sector average (we expect the sector's net profit to be +6.4%, see the January 22 report “Securities Sector 2023E Performance Forecast: Single Digit Profit Growth, Investment Improvement is the Core Support”). Looking at a single quarter, 4Q achieved net profit of 62-850 million/yoy +43% to 95%, and the profit scale reached a record high in nearly 2 years.
By business, it is expected that the sharp increase in investment banking and investment business is the main reason for the high increase in performance. 1) In terms of investment banking business, the company actively creates new business cards featuring “Science and Innovation Investment Bank”, “State-owned Investment Bank”, and “Gongfu Investment Bank” to further expand and deepen the full-chain service system. According to the release date statistics, the company's 23-year IPO was 4.1 billion yuan/yoy +376%, the refinancing scale was 3 billion yuan/yoy +30%, and the bond underwriting scale was 125.1 billion yuan/yoy +85%. 2) In terms of investment business, major stock indexes and bond markets performed better than in 2022 throughout the year. We expect the improvement in return on investment and the increase in investment scale to drive a significant increase in the company's investment income.
Deeply cultivate Zhejiang and build a new financial network that goes hand in hand with the “investment banking+investment+wealth” troika. As a brokerage firm in Zhejiang Province, the company is based on Zhejiang's local resource endowments and focuses on building a “four-type financial communication”, and is guided by the “investment bank+investment+wealth” troika to steadily promote the development of various businesses and help build a strong financial province and financial country.
Investment analysis: Upgraded the rating to “Highly Recommended”. The estimated net profit of 2023-2025E Caitong Securities will be 2.28 billion yuan, 2.48 billion yuan, and 2.88 billion yuan, respectively, +50%, +9%, and +16% compared with the same period last year. The 1/25 closing price corresponds to the company's 23-25E dynamic PB of 1.04 times, 0.99 times, 0.93 times, and dynamic PE of 15.6 times, 14.3 times, and 12.3 times.
Risk warning: The downward pressure on the economy is increasing; the activity of stock transactions in the market has declined sharply; the process of residents' capital entering the market has slowed down.