Incident: CITIC Securities announced its 2023 annual report, which is consistent with the performance report. 1) In 2023, the company achieved operating income of 60.07 billion yuan/yoy -7.7%, and profit to mother of 19.72 billion yuan/yoy -7.5%. Weighted ROE 7.81% /yoy-0.86pct. 2) Looking at a single quarter, 4Q23 revenue was 14.3 billion yuan/yoy -7% /qoq +0%, and return to mother profit of 3.3 billion yuan/yoy -30% /qoq -35%. 3) 2023 dividend plan: RMB 0.475 per share, cash dividend ratio of 36.7%.
Revenue split: Investment banking and net interest business were the company's main revenue drivers, and the investment business was the only positive growth business: net investment of 22.4 billion/yoy +21% in 2023, brokerage revenue of 10.2 billion dollars/yoy -8%, investment bank revenue of 6.3 billion/ yoy -27%; net interest of 4.03 billion/ yoy -31%, mainly due to increased interest costs: 4.55% of debt costs in 2023 /yoy+1.2pct; asset management revenue of 9.8 billion yuan/yoy -10%. Looking at the revenue structure, net investment accounts for 41%, brokerage accounts for 19%, asset management accounts for 18%, investment banks account for 12%, and net interest accounts for 7%.
Operating leverage: In the context of regulatory optimization and risk control index standards, the upper limit of the company's operating leverage is expected to open. At the end of 2023, the company's total assets were 1.45 trillion/yoy +11.17%; operating leverage was 4.35 times, up 0.29 times from the beginning of the year. In November 2023, the Securities Regulatory Commission optimized the calculation standards for risk control indicators for securities companies and appropriately relaxed capital restrictions on high-quality securities companies. The March 2024 “Opinions on Strengthening the Supervision of Securities Companies and Public Funds and Accelerating the Construction of First-Class Investment Banks and Investment Institutions (Trial)” mentioned “moderately broadening the capital space for high-quality institutions”, and the company's leverage limit is expected to increase further.
Investment business: The only positive growth business. The scale of financial investment assets increased by nearly 20% year-on-year and expanded by double digits. Investment assets at the end of 2023 were 748.5 billion yuan, +17.4% from the beginning of the year, and the investment leverage was 2.78 times, up 0.26 times from the beginning of the year; net investment income in 2023 was 22.4 billion yuan/yoy +21%, and the estimated return on investment was 4.13% /yoy+1.24pct, of which the subsidiary Jinshi Investment had revenue of 1.9 billion yuan/yoy +43%, and net profit of 1.1 billion yuan/yoy +81%.
Investment business: Maintaining double share and debt, equity financing market share is nearly 30%. According to Wind, the company has always ranked first in the industry in terms of equity and bond underwriting since 2021. According to the issuance date, the company's IPO size in 2023 was 50 billion yuan, the market share was 14%, the refinancing scale was 120 billion yuan, the market share was 30.4%, and the equity financing market share reached 28.5%; the debt scale was 1.91 trillion yuan, with a market share of 14%, all ranking first in the industry. Affected by market sentiment and regulatory countercyclical adjustment of equity financing, the size of the company's IPO fell by more than 60% year on year in '23, leading to pressure on investment banking business revenue.
Asset management business: Revenue fell 10% year on year, mainly affected by the decline in the scale of asset management of brokerage firms. In terms of brokerage asset management business, according to the China Foundation Association, the company's total asset management scale is RMB 1,388.5 billion yuan/yoy -18%; the company's private equity asset management business (excluding pension services, public equity products, and asset securitization products) has a market share of 13.71%, ranking first in the industry.
In terms of public funds, according to Wind statistics, Huaxia Fund's non-commercial public offering at the end of 23 was 8181 billion/ +16% compared to the beginning of the year. Since the beginning of the year, Huaxia Fund stock ETF issuance was increased by 45% compared to the beginning of the year, with a net increase of 988 billion yuan. The management rate reduction had limited impact on the company's public offering business in the short term: Huaxia Fund's revenue in '23 was 7.3 billion dollars/yoy -2%, and net profit of 2.01 billion yuan/yoy -7%. In 2023, China CITIC Securities Asset Management will officially exhibit and will actively promote public offering license applications.
Investment analysis opinion: Maintain CITIC Securities' buying rating and reaffirm the first recommended portfolio. Considering that regulations will continue to adjust the pace of IPOs countercyclically, we lowered the A-share IPO size assumption in the market, thereby lowering the profit forecast and adding a profit forecast for 26 years. We expect 24-26E profit of $182, 196, and 20.7 billion (original forecast 24-25E, 220 billion, 25.6 billion), -8%, and +5% year-on-year, respectively. The current closing price corresponds to 1.10 times the 24-year dynamic PB. As a leading brokerage firm with stable institutional business advantages and high leverage, the company significantly benefits from supervision and optimization of risk control indicators; if the market continues to pick up in the future, market ADT and finance balances will gradually improve, and the company's brokerage and finance businesses are expected to contribute to performance flexibility and maintain purchase ratings.
Risk warning: The Federal Reserve raised interest rates sharply; liquidity was tightened, and the process of entering the market for residents' funds slowed down; on 1/12, due to a sharp decline in the performance of sponsored project issuers, CITIC Securities issued a warning letter. On 3/22, the Shenzhen Stock Exchange announced that it was decided to launch on-site supervision of CITIC Securities, the sponsor of Liangang Optoelectronics.