The performance of Guolian Securities fell short of our expectations
The company's revenue in 2023 was +13% to 2.96 billion yuan, profit -13% to 670 million yuan, business management rate +10.4ppt to 73% year over year, and ROE -0.7ppt to 3.9% year over year; of these, Q4 loss was 55.46 million yuan (vs. 3q23/4q22 profit of 126/124 million yuan), which was lower than our expectations, mainly due to the weakening of investment banking and investment revenue with the market, while the cost side was more rigid and squeezed profit performance. The company's expansion accelerated in 2023, with total assets +17% YoY to 87.1 billion yuan, and corresponding leverage ratio +0.6x to 4.4x YoY.
Development trends
Fee business: After excluding the impact of fund mergers, the company's handling fees and commission income were +2% compared to the same period, and the reverse market performance was steady; fund consolidation drove a significant increase in asset management revenue. 1) Brokerage revenue in '23 was -6%/to $520 million (Q4 -8% YoY/-3% month-on-month), of which: seat rental revenue +25% YoY to 100 million yuan, and revenue from consignment financial products -22% YoY to 0.3 billion yuan. The company's wealth management customer base was consolidated. At the end of the period, the total number of customers was +10% to 1.74 million, and the number of fund investment customers was +25% to 300,000.
2) Investment banking revenue in '23 was +2% YoY to 490 million yuan (Q4 +19% YoY/-56% YoY). The company's annual equity underwriting scale was -24% to 3.96 billion yuan, outperforming the market (-33% YoY), and the corresponding share was +4bps to 0.35%, of which the IPO underwriting scale was -1% YoY to 2.37 billion yuan; the bond underwriting scale was +31% YoY to 51.6 billion yuan, and the corresponding share was +5bps to 0.29% YoY; 3) Asset Management Business Revenue +129% YoY to 440 million yuan (4Q +145% YoY/-29% YoY). Benefiting from the sharp increase in revenue from the consolidated and asset management business of the League of Nations Fund, excluding the impact of the merger, the parent company's asset management business revenue in 2023 was +3% year-on-year to 190 million yuan, and the performance was steady. The company completed the merger of China Finance Fund in August of last year and obtained approval to establish an asset management subsidiary in September. The asset management business is expected to usher in leaps and bounds.
Capital business: Total net income from investment+interest +2% year-on-year, and bond investments offset equity business fluctuations.
1) Total investment revenue in '23 was +6% YoY to $1.22 billion (Q4 -59% YoY/-49% YoY). Transactional financial assets at the end of the period were +20% to $39 billion compared to the beginning of the year, of which bonds: stocks: funds: other = 57%: 8%: 11%, corresponding yield -0.4ppt to 3.4% year over year; the size of other equity instruments was +23% to 3.6 billion yuan compared to the beginning of the year, and corresponding dividend income was +11% year-on-year to 310 million yuan. 2) Net interest income in '23 was -33% to 80 million yuan, of which interest income was +10% to 1.33 billion yuan, corresponding to the average daily balance of the two loans +11% to 10.2 billion yuan, and the share was +2bps to 0.62% year over year; interest expenses were +15% to 1.25 billion yuan, mainly due to table expansion, which led to a 15% year-on-year increase in the size of interest-bearing debt.
Profit forecasting and valuation
Based on recent market activity in various businesses, we lowered our 24-year profit forecast by 13% to 901 billion yuan, and our 25-year profit forecast by 7% to 1.13 billion yuan. The current A share price corresponds to 2024/25e 1.8x/1.7xp/b, and the H share price corresponds to 24/25e 0.5x/0.4x P/B. Based on the P/B valuation, we maintain that A shares outperform the industry rating and target price of $14.1, corresponding to 24/25e 2.2x/2.1x P/B, with 23% upside compared to the current share price; maintain H shares outperform the industry rating and target price of HK$4.3, corresponding to 2024/25e0.6x/0.6x P/B, with 28% upside compared to the current stock price.
risks
Market fluctuation risk, regulatory policy uncertainty.