[Event] Fangzheng Securities announced its 2023 annual results: the company achieved operating income of 7.12 billion yuan, -8.5% year on year; net profit to mother of 2.15 billion yuan, +0.2% year over year; corresponding EPS 0.26 yuan, ROE 4.9%; the company's leverage ratio was 4.26 times, an increase of 0.75 times over 2022. The fourth quarter achieved revenue of 1.45 billion yuan, -22.5% YoY and -10.1% YoY. Net profit attributable to mother was 220 million yuan, +4.3% YoY and -56.4% YoY.

Consignment sales revenue grew against the market, and the market share of the two finance companies increased rapidly. The average daily share base transaction volume of the entire market in 2023 was 962.5 billion yuan, -4.0% year-on-year, and the balance of the two loans in the entire market was 1650.9 billion yuan, +7% compared to the beginning of the year. In this context, Fangzheng Securities brokerage business revenue was 3.27 billion yuan, -9.1% year-on-year, accounting for 46.0% of revenue. The company's revenue from consignment sales of financial products was 250 million yuan, +6.6% year-on-year, accounting for 7.6% of brokerage business revenue. The company's two financing balance was 30.9 billion yuan, +18% compared to the beginning of the year, 1.87% market share, and +0.17pct year over year.

The investment banking business is under pressure, and the scale of equity and debt underwriting has declined. Investment banking revenue in 2023 was 210 million yuan, -60.4% YoY. The share business underwriting scale was -22.1% year-on-year, and the bond business underwriting scale was -51.3% year-on-year. Shareholders' underwriting scale was 4.71 billion yuan, ranking 36th; of these, 4 IPOs raised 900 million yuan; and 5 were refunded, with an underwriting scale of 3.8 billion yuan. The principal underwriting scale of bonds was RMB 171 billion, ranking 38th; among them, the underwriting scale of corporate bonds, corporate bonds, and ABS was RMB 10.2 billion, RMB 3.9 billion, and RMB 2.9 billion respectively. There are 3 IPO reserve projects, ranking 35th, including 2 from the Beijing Stock Exchange and 1 from GEM.

Due to multiple factors, management scale and revenue declined. In 2023, the company's asset management business revenue was 180 million yuan, -23.2% year-on-year. The company's securities asset management business has a comprehensive layout of fixed income, equity, FOF and quantitative business, and the collaborative development of public and private equity businesses to enrich the product line layout. However, due to factors such as the decline in the scale of bank outsourcing, the gradual expiration of existing historical fiduciary business, and changes in individual management product managers and market conditions, the scale of asset management fell 19% year-on-year to 57.7 billion yuan.

The rapid increase in scale drives the growth of proprietary businesses. In 2023, the company's investment income (including fair value) was 1.70 billion yuan, +53.5% year on year, total proprietary assets were 105.8 billion yuan, +39.9% year on year; fourth quarter investment income (including fair value) was 250 million yuan, +383.4% year over year.

[Investment Proposal] We expect the company's 2024-2026E EPS to be 0.30/0.33/0.36 yuan, respectively, and the BVPS will be 5.96/6.24/6.68 yuan respectively. The company was given 1.5-1.6x 2024E PB, with a corresponding reasonable value range of 8.95-9.54 yuan, maintaining a “superior to the market” rating.

Risk warning: Brokerage business doubles in volume and price; implementation of financial policy reforms falls short of expectations; the market continues to be sluggish and the bond market fluctuates.