Incident: Orient Securities announced its 2023 annual report, which is basically consistent with the performance report. Achieved annual revenue of 17.09 billion yuan/yoy -9%; realized net profit of 2.75 billion yuan/yoy -9%, of which 4Q23 profit 100 million/yoy -110% /qoq -111%; and weighted ROE of 3.45% /yoy-0.71 pct in 2023.
Investment improvements support performance, and stock pledge risk mitigation is coming to an end. In 2023, the company's securities main revenue was 11.61 billion yuan/yoy -4%. 1) Main revenue split: Brokerage, investment banking, asset management, net interest, and net investment achieved revenue of 27.8 billion, 15.1, 20.3, 17.6, and 2.33 billion, respectively, -10%, -13%, -23%, +8%, and +35%, respectively; accounting for 23.9%, 13.0%, 17.5%, 15.2%, and 20.1%, respectively. 2) 4Q lost 100 million dollars in a single quarter (1.01 billion dollars in the same period last year), mainly due to market fluctuations; 3) In terms of stock pledges, risk mitigation took 5 years to come to an end. At the end of the period, the company's remaining net book value was 1.58 billion yuan (1H23 was 2.95 billion yuan), and the collateral market value was 2.56 billion yuan. It is expected that the depreciation pressure has basically eased.
Investment leverage has been steadily expanding, and non-directional transformation has accelerated. 1) The company's annual net investment income is 2.33 billion yuan/yoy +35%, and the estimated net return on investment is 1.27% /yoy+0.2pct; the company's operating leverage at the end of the period is 3.46x/yoy+0.29x/qoq+0.08x, financial investment scale 19.6 billion yuan/yoy +17% /qoq +3%, investment leverage 2.51x/yoy+0.33x/qoq+0.08x. 2) Orient Securities strengthened group collaboration to build the Dongfang Jinyan business brand. In 2023, the company's OTC options trading scale was 120.7 billion/yoy +17%, and the revenue swap transaction scale was 444 billion/yoy +134%.
Wealth management revenues are under pressure, and buyer investment transformation continues to be promoted. 1) Brokerage business: The company's securities brokerage business revenue was 1.78 billion yuan/yoy -14%, with institutional commissions of 590 million/yoy -21%, and revenue from consignment sales of 220 million yuan/yoy -14%; the holding scale of the company's equity products at the end of the period was 45.7 billion yuan/yoy -5%; the mixed shareholding scale ranked 14th among brokerage firms. 2) Steady growth in customer scale: During the reporting period, the company continued to promote the transformation of “buyer investment” to maintain the stability of the basic brokerage business; the number of clients reached 2.69 million/yoy +10% at the end of the period, the fund investment business scale was 14.4 billion, customer retention rate 69%, and the reinvestment rate was 76%; 3) In terms of the two-finance business, the company's two financing scale at the end of the period was 208 billion/yoy +7%, and the market share remained flat at 1.26% /yoy.
In total, the public fund management line contributed 36% of profits, and the contribution declined due to pressure on volume and price. The total profit management line contributed 990 million/yoy -37%, accounting for 36% /yoy-16pct of profit. Specifically: 1) Eastern Securities Asset Management: Achieved revenue of 2.06 billion yuan/yoy -24% in '23, net profit of 490 million/yoy -41%, accounting for 18% of profit. 2) Huitianfu Fund (holding 35.41% of shares): Achieved revenue of 5.37 billion yuan/yoy -21% and net profit of 1.42 billion yuan/yoy -32% in 23 years, contributing 18% of profit. In terms of management scale, at the end of '23, Huitianfu's non-cargo AUM reached 447.6 billion yuan/yoy -13%, equity fund AUM reached 240 billion yuan/yoy -19%, Eastern Securities Asset Management's non-cargo AUM reached 166.5 billion yuan/yoy -13%, and equity fund AUM reached 112.8 billion yuan/yoy -22%. During the same period, the non-cargo base size of the entire market was +5%, and the equity fund YOY -9%. The company's public offering performance was slightly lower than that of the industry.
It was reaffirmed that 2024 is a year of restoration of the company's fundamentals and valuation. Two major factors are expected to drive the company's fundamentals and valuation to continue to be repaired: 1) the company's stock pledge risk mitigation is coming to an end (with credit risk losses of 8.3 billion and 1.03 billion dollars in 22 and 23 respectively), which is expected to gradually release performance; 2) The third phase of the public offering fee reform is expected to advance in the second half of the year, and the net management fee on the asset management side will be reduced due to the reduction in fees (previously net management fee = 1.5% * (1-50%) = 0.75%. Assuming that the final commission limit is reduced from 50% to 40%, the net management fee = 1.2% * (0.72%) = 2%), Subsequent market recovery will drive the company's performance recovery.
Investment Analyst Opinion: Maintaining the “Highly Recommended” rating. Public offering fee cuts and related disruptions have basically come to an end. Subsequent reforms such as a strong foundation are gradually implemented, and the company is expected to benefit from a recovery in trading. The estimated net profit of 2024-2026E will be RMB 33.2, 37.5, and 4.19 billion yuan, respectively, or +21%, +13%, and +12% compared with the same period last year. The 3/27 closing price corresponds to the company's 24-26E dynamic PB of 0.92, 0.89, 0.86x, and dynamic PE of 21, 19, 17x.
Risk warning: The downward pressure on the economy is increasing; the activity of stock transactions in the market has declined sharply; the process of residents' capital entering the market has slowed down.