The company's main business performance declined due to a high correlation between revenue and capital market prosperity. In 2023, the company achieved total operating income of 1,113 billion yuan, a year-on-year decrease of 11%; realized net profit of 73 million yuan, net profit after deducting non-recurring profit and loss of 65 million yuan, all down about 80% year on year; ROE was 4.08%, down 18.61 pct year on year. The first reason for the decline in performance was the decline in capital market prosperity, and the financial information service business was impacted by sluggish transactions. Second, participation in the restructuring of subsidiaries and capital increases led to high costs.

The performance of traditional financial information services has declined, and product research and development continues to be promoted. In 2023, the company's financial information service business achieved revenue of 949 million yuan, a year-on-year decrease of 20%; gross margin was 85%, a year-on-year decrease of 3.65 pcts, and the revenue contribution rate exceeded 85%. On the one hand, low market activity has had a certain impact on the company's revenue, and on the other hand, it is due to a decrease in the accumulation of mid-tier product customers required for high-end product marketing. In 2023, the company continued to increase R&D investment and accelerate iterative product upgrades. R&D expenses reached 146 million yuan, an increase of 16.59% over the previous year. In 2024, financial information performance is expected to recover as the company's products continue to be upgraded and iterated, and the synergy between financial information services and securities business is deeply explored.

The diversion is beginning to bear fruit, and McGow Securities is gradually recovering, and attention is being paid to the progress of fixed growth. Since the company acquired McGo Securities in 2022, the securities business has gradually been restored. (1) In 2023, McGow Securities achieved operating income of 206 million yuan, an increase of 245% over the previous year; the net return to mother was 4.91 million yuan, and the loss amount narrowed sharply. (2) In November 2023, the company proposed a stock option incentive plan, which is conducive to increasing the motivation of core employees. The current price is 49.2 yuan lower than the equity incentive price. (3) Expand the asset management sector. After regulatory approval, Compass will hold 39.2% of Pioneer Fund's shares and become its largest shareholder to achieve a collaborative development strategy for financial information, securities and fund businesses. (4) The company expects to invest all of the fixed capital increase (no more than 3 billion yuan) in McGow Securities to enrich the capital, increase the integration of McGow Securities, and promote the digital practices of brokerage subsidiaries.

Investment suggestions: Based on capital market fluctuations and high costs due to participation in the restructuring of subsidiaries and capital increases, we lowered the company's revenue forecast for 2024 and 2025 to 1,148 billion yuan and reduced the corresponding net profit by 38% and 37% respectively. The net profit to the mother is expected to be 149 million yuan, 195 million yuan, and 236 million yuan, respectively. The growth rates are 106%, 30%, and 22%, respectively. The PE corresponding to the current stock price is 165.1/126.6/104.2x. PB is 12.3/9.0/7.0x. Looking ahead to 2024, as market activity improves, the company continues to complete the transformation and upgrading of advantageous functions such as seats and private equity. Empowered by fintech, drainage results will gradually become apparent, realizing the deep integration of the new “traditional business+digital technology” model of brokerage firms. The Internet securities business can be expected to develop and maintain the company's “buy” rating.

Risk warning: Risk of large profit forecast deviations; risk of large fluctuations in the equity market; risk of the company's business being affected by the sentiment of the securities market; risk that the integration effect of McGow Securities falls short of expectations; risk of increased market competition.