CITIC Securities released its 2023 annual report. In 2023, the company achieved operating income of 60.068 billion yuan, a year-on-year decrease of 7.74%; realized net profit of 19.721 billion yuan, a year-on-year decrease of 7.49%; achieved basic earnings per share of 1.30 yuan/share, a year-on-year decrease of 8.45%; and a weighted average return on net assets of 7.81%, a year-on-year decrease of 0.86 percentage points. The main reason for the decline in revenue was affected by the brokerage and investment banking business cycle. Apart from the investment business, all other businesses declined.
The level of leverage is stable, dividends are increasing, and liquidity indicators need to be optimized. The company's effective leverage level remains at least 4 times. This provides the capital base for capital intermediation and other metering businesses. The net stable capital ratio (about 125%) is still low, and long-term capital absorption needs to be increased; the company plans to distribute 4.75 yuan for every 10 shares, accounting for 36.67% of net profit returned to mother in the consolidated statements, an increase of 1.8 percentage points over 2022.
Proprietary profits have improved, and the investment banking structure has been transformed. The company achieved investment business revenue of 21,846 billion yuan, an increase of 23.87% over the previous year, mainly due to the improvement in the fixed income market, while the company increased the transformation of the FICC valet business. The company achieved investment banking revenue of 6.293 billion yuan in the same year, a year-on-year decrease of nearly 30%, which was affected by the slowdown in market IPOs. It is expected that the scale of the IPO is likely to shrink in a strict regulatory environment. The company is expected to combine stocks, debt instruments, and diversified capital such as own capital and private equity, and mergers, acquisitions and restructuring will become a new growth point.
Brokerage and credit businesses are under pressure, and asset management is being transformed with multiple licenses. The company achieved brokerage revenue of 10.223 billion yuan, a year-on-year decrease of 8.47%, mainly due to the overall poor market; it achieved credit business revenue of 4,029 billion yuan, a year-on-year decrease of 30.60%. This is related to the increase in debt-side financial costs. The company built a comprehensive buyer investment system, completed the subsidization of the asset management department, and hedged the cyclical downward impact of the wealth business.
Overseas business expanded, and institutional and wealth businesses set sail. It is expected that the period of rapid growth in the OTC derivatives business has passed. The company will strengthen the unified scheduling and management of domestic and foreign capital, and increase the integrated layout through cross-border derivatives, Hong Kong family offices, and the Singapore Wealth Platform, etc., and the Hong Kong and Southeast Asia business will continue to strengthen.
Risk warning: Market decline brings uncertainty to brokerage performance and valuation repair; financial supervision is becoming stricter; market competition is intensifying; innovation is falling short of expectations, etc.
Investment advice: Based on equity market fluctuations and the impact of new regulatory regulations on the securities industry, our profit forecasts for 2024 and 2025 were lowered by 6.77% and 0.33% respectively. We expect the company's net profit to mother in 2024-2026 to be 226.7/248.9/26.73 billion yuan, up 15.0%/9.8%/7.4% year on year. The PE corresponding to the current stock price is 12.8/11.7/10.9x, and PB is 1.1/1.0/1.0x. As a leading brokerage firm, the company has strong comprehensive strength and continues to lead the ROE level industry. We maintain the company's “buy” rating.