Incident: On January 26, the company disclosed its 23-year performance report, achieving net profit of 2.75 billion yuan/yoy -8.65% for the whole year, total operating income of 17.09 billion yuan/yoy -8.78%, and ROE of 3.44% /yoy -0.72%.
The performance was lower than our previous expectations (forecasted annual profit of 3.53 billion yuan/yoy +17%), and the investment business is expected to be under pressure mainly due to fluctuations in the 4Q market environment.
The 4Q quarter lost 110 million dollars, which is expected to be mainly due to pressure on the investment business. 1) Looking at a single quarter, 4Q's total revenue was 3.39 billion yuan/yoy -49% /qoq -32%, and net profit to mother was 110 million yuan (1.01 billion yuan for the same period last year). The reason for the year-on-year decline is that capital market fluctuations put pressure on the company's Tier 1 and 2 investment income. 2) In terms of stock pledges, as of 1H23, the company's remaining net book value was 2.95 billion yuan, and the collateral market value was 4.87 billion yuan. It is expected that the depreciation pressure has basically abated.
Affected by the contraction of the equity fund market, the size of asset management subsidiaries declined. Judging from its public offering performance, 4Q Huitianfu's non-cargo AUM reached 447.6 billion yuan/qoq -4%, equity fund AUM reached 240 billion yuan/qoq -8%, TSE Asset Management's non-cargo AUM reached 166.5 billion yuan/qoq -2%, and equity fund AUM reached 112.8 billion yuan/qoq -9%. During the same period, the non-cargo base size of the entire market was +1%, and the equity fund qoq -5%. The company's public offering performance was slightly lower than that of the industry.
2024, the year of fundamental and valuation restoration. The company was disrupted by the Zhejiang Guoxiang incident in mid-October 23 and caused a sharp decline (10/10-10/17 surplus -11% compared to the securities sector), and the impact of this incident has gradually been resolved (+9% over the securities sector since 23/10/18, see Figure 1). Looking ahead to 2024, we believe that two major factors are expected to drive the company's fundamentals and valuation to continue to recover: 1) Under the low base, the company's performance is expected to exceed that of its peers; 2) as the third phase of public funding reform progresses, the net management fee on the asset management side will be affected by the fee reduction (previously net management fee = 1.5% * (1-50%) = 0.75%. Assuming that the final commission limit is reduced from 50% to 40%, the net management fee = 1.2% * (1-40%) = 0.72%). Subsequent equity market recovery will drive the company's performance recovery.
Investment analysis opinion: Maintain a “recommended” rating. Public offering fee cuts and related disruptions have basically come to an end. Subsequent capital market reforms have continued to be implemented, and market money-making benefits have begun. The company is expected to benefit from the popularity of trading and the recovery of new development funds. The estimated 2023-2025E net profit to mother will be 2.75 billion yuan, 40.6 billion yuan, and 4.88 billion yuan, respectively, -9%, +48%, and +20% year-on-year. The 1/26 closing price corresponds to the company's 23-25E dynamic PB of 0.97, 0.93, 0.89x, and dynamic PE of 18.3, 15.3, and 11.8x.
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.