Incident: Haitong Securities disclosed its 2023 annual report, and the results fell within the reporting range of the performance report. The company achieved revenue of 22.95 billion yuan/yoy -11.5% in 2023; net profit to mother of 1.01 billion yuan/yoy -85%. 4Q23 revenue for a single quarter was 380 million yuan/yoy -95% /qoq -93%; net profit for the single quarter was 3.35 billion yuan/yoy -814% /qoq -730%. ROE at the end of the period 0.61% /yoy-3.38pct.

Revenue splitting: Investment income reverses loss into profit, and credit business is the biggest drag on main revenue. In 2023, the company achieved main revenue of 14.12 billion yuan/YOY -18%. The specific business line revenue/yoy is as follows: brokerage 3.83 billion/-18%, investment bank 3.42 billion/-18%, asset management 1.91 billion/-15%, net interest of 4.09 billion/-34%, net investment income of 140 million/loss, and long-term stock investment of 540 million/ -31%.

The revenue share is as follows: net interest 29%, brokerage 27%, investment banking 24%, asset management 14%, long-term stock investment 4%, net investment income 1% (excluding other handling fee income). Judging from performance contributions, investment income positively drove main revenue of 9.3 pcts under a low base, while credit business negatively drove main revenue of 12.4 pcts.

Performance attributions: 4Q23 revenue declined sharply in a single quarter compared to the same period last month, and the decline in net profit to mother in 4Q23 was significantly higher than the main reason for revenue:

1) Affected by capital market fluctuations, 4Q23 saw a net loss of 3.32 billion yuan in investment income; 2) Credit impairment accrued 2.01 billion yuan/yoy +65% /qoq +596% under a low base, mainly due to increased impairment losses on the purchase and resale of financial assets.

The asset size of newly opened customers increased year-on-year, and the brokerage securities trading business declined with the market. According to the annual report, 1) Wealth management: The number of new customers opened by the company in 2023 was 1.1 million, and the assets of newly opened customers were 259.2 billion yuan/+31% year-on-year. At the end of the period, the number of the company's wealth management clients was 18.09 million, up 6.2% from the end of the previous year, and the asset scale of custodian clients was 3.0 trillion yuan/0.60% increase over the end of the previous year. 2) Securities brokerage business: Affected by the decline in active market trading, the company's stock base turnover in 2023 was 16 trillion/yoy -6.2%, and the market share ratio was 3.32% /yoy-12bps. The company actively implemented a fee reduction and concession policy, and the brokerage business commission rate for 23 years was 2.02bps/ yoy-0.26bps. 3) Financial product sales: The company's financial product holdings were 129.8 billion yuan/yoy +12.4% in 23 years, achieving sales revenue of 250 million yuan/contributing 8% to net income from securities brokerage business.

Haifutong Fund's non-commodity AUM increased compared to the beginning of the year, and Wells Fargo Fund's position in the AUM industry is stable. According to the annual report, profit contributions:

Haitong Securities's major asset management contributed 980 million yuan/yoy -20% in total profit. Public AUM: According to Wind data, at the end of '23, Haifutong Fund's non-cargo-based AUM was 102.5 billion yuan/yoy +10%; Wells Fargo Fund's non-cargo-based AUM was 571.1 billion yuan/-2% compared to the beginning of the year, ranking 5th in the industry.

Equity investment banks bucked the trend and paid attention to the quality of Haitong Investment Bank's practice. According to Wind data, equity financing: In 2023, the company achieved IPO underwriting of 46.6 billion yuan/yoy +30% (industry yoy -31%), ranking second only to CITIC Securities. Among them, Haitong Securities underwrote 38 billion yuan/ranked first in the industry in the science and technology innovation board; in 2023, the company underwrote 21 billion yuan/yoy +38% (industry yoy -37%), ranking 5th in the industry; debt financing: 2023 bond company underwriting scale of 484.7 billion yuan/yoy +48% (industry yoy +48%) ( (Industry YOY +26%), ranking 6th in the industry. Focus on the quality of Haitong Investment Bank's practice: Haitong Securities has voluntarily withdrawn 29 IPO projects/4th in the industry since 2023, with a withdrawal rate of 22.83%; in January 2024, Haitong received regulatory letters from the Shenzhen Stock Exchange and the Shanghai Stock Exchange respectively (all internal control issues in the IPO sponsorship business).

Investment analysis opinion: Lower the profit forecast and maintain the holdings increase rating. We selected listed brokerage firms with net assets similar to Haitong Securities as comparable companies: Guotai Junan, Guoxin Securities, China Merchants Securities, and GF Securities. According to Wind's unanimous forecast, the average 2024E BPS is 14.67 yuan/share, and the average 2024E PB of comparable brokers' 2024E is 0.86 times higher. Considering that Haitong Securities's young asset business in 2023 was under pressure (the asset-light business accounted for 66% of revenue), and impairment losses dragged down profits; however, during the reporting period, Haitong Securities completed privatization of international subsidiaries, and future cross-border collaboration can be expected; after the August to November 2023 repurchase (repurchase of 41.51 million shares/repurchase amount exceeding 414 million yuan), the repurchase plan was announced in January 24 (inclusive)), demonstrating the company's confidence in its steady development. Based on comprehensive considerations, we gave Haitong Securities a 10% discount (0.77 times) on the 24E average PB. The corresponding target price was 9.82 yuan/share, with room for an increase of 13% compared to the 2024/3/28 closing price, maintaining an increase rating. The company's 24-26E net profit is expected to be 41.5, 53.3, and 7.23 billion yuan (originally forecast 24-25E 89.7 billion, 10.76 billion), +311.5%, and 35.6% year-on-year, respectively.

Risk warning: The downward pressure on the economy has increased; the market share base transaction activity has declined sharply; on 2024/1/8, the Shenzhen Stock Exchange issued a regulatory letter on Haitong Securities (due to irregularities in sponsoring the IPO of Jiangsu World Agricultural Machinery Co., Ltd.); 2024/1/29, the Shanghai Stock Exchange announced a decision to take regulatory measures against Haitong Securities and related responsible persons (the IPO sponsorship business clearly failed to perform due diligence; the investment bank's quality control core department did not identify major project risks and defects such as careless due diligence).