Orient Securities released its 2023 annual report. In 2023, the company achieved operating income of 17.090 billion yuan, a year-on-year decrease of 8.75%; realized net profit to mother of 2,754 billion yuan, a year-on-year decrease of 8.53%; corresponding EPS of 0.30 yuan, a year-on-year decrease of 14.29%; and a weighted average return on net assets of 3.45%, a year-on-year decrease of 0.71 percentage points. The main reason for the decline in revenue was the impact of the brokerage, investment banking, and asset management business cycles.
Self-operated business is improving, and the institutional FICC system is beginning to take shape. In 2023, the company achieved investment business revenue of 2,388 billion yuan, an increase of 25.67% over the previous year. Since then, its operating performance was mainly reflected in the first quarter and the third quarter, which is strongly correlated with the fixed income market. Institutional business progressed steadily. The company's interbank cash trading volume increased 24.9% year on year, exchange bond trading volume increased 177.2% year on year, and interest rate swap volume increased 86.9% year on year.
In the same period, the company was approved as the main market maker for the first batch of Shanghai and Shenzhen exchange bonds. Interbank market trading volume increased by 12.3% year-on-year. Market making represented by the improvement of the FICC system would reduce the company's self-operating risk exposure.
Traditional brokerage is under pressure, and wealth transformation is advancing. In 2023, affected by poor overall market performance, the company achieved brokerage revenue of 2,781 billion yuan, a year-on-year decrease of 9.85%, a market share of 1.63%, and ranked 20th in the industry. The company's institutional wealth management holdings were 10.9 billion yuan, up 45.3% from the beginning of the year; the total assets of high-net-worth retail customers were 150 billion yuan, up 3.97% from the beginning of the year. The company took the lead in setting up fund investment business, diversifying the customer service system through multiple channels online.
The asset management cycle has declined, and the internationalization process has begun. In 2023, due to the impact of the capital market cycle, the company achieved asset management revenue of 2,029 billion yuan, a year-on-year decrease of 23.31%. The total management scale of TSE's asset management was 235.754 billion yuan, a year-on-year decrease of 17%; of these, the public fund management scale exceeded 180 billion yuan, a year-on-year decrease of 11%; the company expanded the internationalization of the asset management sector, opened a US subsidiary, and the Singapore subsidiary's application was approved.
Investment industry performance declined in a strict regulatory environment. In 2023, due to the slow pace of IPOs, the company achieved investment banking revenue of 1.51 billion yuan, a year-on-year decrease of 12.86%. The company completed 15 equity financing projects, with a principal underwriting amount of 12.998 billion yuan, a year-on-year decrease of more than 40%; the total underwriting amount of bonds was 386.4 billion yuan, an increase of 14.9% over the previous year. During the same period, the company assisted 5 companies to go through the IPO meeting and 8 companies to refinance the meeting. The approval rate reached 100%, judging that the risk of subsequent compliance in the investment banking business is manageable.
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 19.89% and 23.66% respectively. We expect the company's net profit to be 31.8/33.7/3.53 billion yuan in 2024-2026, up 15.3%/6.2%/4.8% year-on-year. The PE corresponding to the current stock price is 22.4/21.1/20.1x, and PB is 1.0/0.9/0.9x. As market reforms continue, the company's various business advantages are expected to continue, and the company's comprehensive strength and ROE will continue to improve. We maintain a “buy” rating for the company.