Incident: Nanhua Futures released its 2023 annual report. During the reporting period, it achieved revenue (net amount method) of 1,277 million yuan, +34.69% year over year; realized net profit of 402 million yuan, +63.31% year over year.
Q4 achieved revenue (net amount method) and net profit to mother of 3.47 million yuan and 103 million yuan in a single quarter, +25.10% and -9.38% year-on-year.
Net interest income is the core driver behind the significant increase in performance. Looking at the revenue side breakdown, in 2023, fee and commission income, net interest income, investment income+fair value change income, and other business revenue (net method) were 6.12, 5.45, 1.02, and 68 million yuan respectively, +22.81%, +67.02%, +23.78%, and +134.30% year-on-year respectively. Among them, net interest revenue accounted for a year-on-year ratio of +8.26% to 42.70% of revenue (net amount method), which is the core driving force for the company's performance growth.
The sharp rise in the volume and price of overseas business contributed to an outstanding net income from interest. 1) Quantitatively, the company successfully obtained the Minneapolis Grain Exchange liquidation license during the reporting period, and the overseas clearing license was further expanded; thanks to the company's perfect overseas clearing system, the rights of overseas customers are expected to grow steadily. 2) In terms of price, the Federal Reserve raised interest rates by a total of 100 BP in 2023. The high overseas interest rate environment supports the high increase in net income from overseas interest. Foreign net interest income is measured by the difference between the consolidated statement and the parent company's net interest income. Net overseas interest income in 2023 was 394 million yuan, +211.59% year over year, accounting for 72.30% of total net interest income, +33.55pct year on year.
Net income from interest in the domestic business was under pressure, and the wealth management business bucked the trend. In terms of net interest income, there was pressure in an environment where market interest rates were declining. The company's net domestic interest income during the reporting period was 151 million yuan, -24.46% over the same period last year. In terms of handling fees and commission revenue, the wealth management business achieved major breakthroughs. The total scale of public fund business and asset management business reached 211.11 billion yuan and 1,283 billion yuan during the reporting period, +38.53% and +75.27% over the same period. Combined with the increase in trading activity in the futures market, domestic fees and commission revenue reached 423 million yuan, +15.84% over the same period last year. In terms of risk management business, during the reporting period, the company achieved a current trade volume of 5.494 billion yuan, an additional nominal principal of 79.114 billion yuan (+10.27% year-on-year) in the OTC derivatives business, and achieved a market making business turnover of 927.419 billion yuan (+17.43% year over year).
Investment advice: The company's overseas business continues to benefit from the advantages of the clearing system. At the same time, the high level of opening up the futures market to the outside world is accelerating. Overseas business is expected to be compensated by volume, and domestic business is also expected to be supported as the futures market continues to expand. Revenue for 2024-2026 is expected to increase 17.47%, 10.22%, and 0.41% year on year; net profit to mother will increase 22.20%, 15.32%, 6.86% year on year; EPS will be 0.80, 0.93, 0.99 yuan; PE corresponding to the closing price on March 15 will be 13.58, 11.77, and 11.02 times. Maintain a “buy” rating.
Risk warning: Futures trading activity declined, overseas interest rate cuts exceeded expectations, industry competition intensified