Key points of investment
Incident: Guolian Securities released its 2023 annual report. The company achieved operating income of 2,955 billion yuan in 2023, an increase of 12.68% over the previous year, and realized net profit of 671 million yuan to mother, a year-on-year decrease of 12.51%.
The company's 23Q4 net profit recorded a negative value, dragging down the annual results: in 2023, Guolian Securities revenue/net profit increased 13%/-13% year over year to 3.00/700 million yuan respectively, of which 23Q4 revenue/net profit was 4.5/-60 billion yuan respectively, -21%/-145% YoY, and -36%/-144% month-on-month, causing a major drag on annual results. The main reasons for the decline in the company's 23Q4 performance include: ① 23Q4 net interest income recorded a negative value (-213% month-on-month to -0.57 billion yuan), which is expected to be mainly due to increased interest expenses due to bonds payable and the sale and repurchase of financial assets. ② 23Q4 business and management expenses remained high (23Q4 business and management fees +29%/-8% to $530 million, year-on-month, +31% to 2.15 billion yuan), which is mainly due to the company's accelerated introduction of talents and business expansion in the process of increasing the scale of the exhibition industry in 2023 (+25% to 1.38 billion yuan in 2023). ③ Proprietary business revenue declined in 23Q4. Affected by the downturn in the 23Q4 market, 23Q4 companies' self-operated business revenue (investment income - return on investment in joint ventures + net income from changes in fair value) was -52%/-27% month-on-month, respectively, to 110 million yuan.
During the year, Guolian Fund also saw a high increase in asset management business revenue for the year: in 2023, the net revenue from the asset management business of Guolian Securities +129% was increased to 440 million yuan, mainly due to the combined net revenue of the League of Nations Fund during the year, which added 240 million yuan of net revenue from the public fund business and merged into the net revenue of the asset management business. After deducting the net revenue from the public fund business, the net revenue from the company's asset management business is +7% of the same caliber, which is expected to be mainly due to a recovery in the targeted asset management business rate of +0.03 pct compared to the previous year (through calculation, the company's 2023 targeted asset management rate was +0.03 pct compared to the previous year, driving the company's net revenue from targeted asset management business +35% to 60 million yuan in 2023).
The brokerage business still needs to be boosted, and investment banking revenue bucked the trend: 1) Trading sentiment continued to be sluggish, and the company's brokerage business revenue declined. The average daily share base turnover of the entire market in 2023 was -2% year-on-year to $992.1 billion, and investor sentiment was low. Affected by this, the company's net brokerage fee revenue was -6% year-on-year to 520 million yuan. 2) The scale of corporate debt commitments expanded, and the IPO scale remained the same as the previous year, driving an increase in investment banking business revenue. Affected by the Securities Regulatory Commission's phased tightening of IPOs and refinancing, the IPO/refinancing scale of the entire market in 2023 was -39%/-24% year-on-year to 3565/594 billion yuan, putting pressure on the overall investment banking business of the securities industry. The company's net revenue from investment banking business fees bucked the trend of +2% year on year to 490 million yuan in 2023. It is mainly expected that the scale of debt financing will increase significantly (+65% to 65.1 billion yuan) and that the IPO underwriting scale will remain basically the same year over year (-1% to 2.4 billion yuan).
The president of Guolian Group became the chairman of Minsheng Securities and the integration has entered the substantive stage: On the morning of March 11, Minsheng Securities issued an announcement stating that Minsheng Securities recently held a board of directors and shareholders' meeting to elect Gu Wei as the new chairman of Minsheng Securities, and is currently the president of Guolian Group, the majority shareholder of Guolian Securities.
After the new chairman takes office, it is expected that the integration of Guolian Securities and Minsheng Securities will further accelerate.
Profit forecast and investment rating: Since 2024, the “two strong, two strict” regulatory tone has continued to be strengthened, and the brokerage business environment has changed dramatically. Based on the company's 2023 business situation and 24Q1 market situation, we lowered our previous profit forecast. It is estimated that in 2024-2025, the company will achieve net profit to mother of 765/912 million yuan (previous value of 1,221/1.15 billion yuan), corresponding growth rates of 13.97%/19.25%, respectively. The company is expected to achieve net profit of 1,074 billion yuan in 2026, corresponding to a growth rate of 17.75%. The current market capitalization is 1.71/1.51/1.46 times the 2024-2026 PB, respectively.
I am optimistic that the company's subsequent endogenous growth will go hand in hand with epitaxial expansion, and maintain a “buy” rating.
Risk warning: 1) The equity market fluctuates greatly; 2) industry regulatory policies are tightening.