Incident: China Merchants Securities disclosed its 2023 annual report, and the results for the fourth quarter of a single quarter exceeded expectations. In 2023, the company achieved operating income of 19.8 billion yuan/yoy +3.1%, net profit of 8.76 billion yuan/yoy +8.6%, weighted ROE of 7.91% /yoy+0.37pct. Looking at a single quarter, 4Q23 achieved revenue of 4.95 billion yuan/yoy +26% /qoq +21%, and net profit of 2.36 billion yuan/yoy +32% /qoq +41%.
Net investment is the company's largest source of revenue. 1) Looking at the revenue growth rate, in 2023, the company's net investment was 6.79 billion yuan/yoy +34%, brokerage 5.53 billion/ yoy -14%, long-term stock investment (mainly China Merchants Fund and Bosch Fund) 1.53 billion/yoy -8%, net interest 1.45 billion/yoy +8%, investment bank 1.30 billion/yoy -7%, and asset management 71/yoy -14%. 2) Looking at the revenue structure, net investment accounts for 38%, brokerage 31%, long-term stock investment 9%, net interest 8%, and investment banks 7%.
Investment business: The recovery in the bond market drove net investment income in the fourth quarter of a single quarter to exceed expectations. At the end of 2023, the company's investment assets were 374.6 billion yuan/yoy +21%, and the estimated return on investment in 2023 was 2.0% /yoy+0.36pct. Among them, Q4 had a net investment of 2.04 billion yuan/yoy +141% /qoq +143%, respectively (1.72 billion, 2.18 billion, 8.4 billion, and 2.04 billion yuan in Q1-Q3, while the Q1-Q4 China Securities Full Debt (net) increases were 0.2%, 1.2%, 0.03%, and 0.65%, respectively. It can be seen that the company's net investment was more affected by the bond market. Since the first quarter of this year (as of 3/28), China Securities's full debt (net) has risen 1.51%, and the company's investment income is expected to exceed expectations.
Brokerage business: The company's share base transaction market share has been rising steadily, and the market share platform's enabling effect is remarkable. The company's share base trading market share was 5.23% /yoy+0.01pct in 2023, and has been on the rise since 2019. At the end of the year, the number of regular trading customers of the company was about 17.76 million, an increase of 8.0% over the previous year. According to Yiguan Qianfan's statistics, the average number of monthly active users (MAU) of the China Merchants Securities app increased 4.7% year-on-year, ranking 5th in the top ten brokerage firms, and ranked first among the top ten brokerage firms in the top ten. Wealth management transformation continues to deepen: by the end of 2023, the number of individual corporate wealth management customers increased by 3.20% year on year, and the number of high-net-worth customers increased 5.67% year on year. According to the China Securities Association, 4Q23's non-monetary public offering and mixed share holdings were 94.9 billion yuan and 79.3 billion yuan respectively, ranking 5th in the securities industry. The fund investment business “e-Procurement” product holdings increased 76% year-on-year to 4.656 billion yuan at the end of the year.
Public offering business: Participating in two public offering companies ranked in the top 2 in the industry in terms of debt base size at the end of the year. The total public offering business contributed nearly 20% of profits. Bosch Fund (holding 49% of shares) achieved operating income of 4.59 billion yuan/yoy -14% and net profit of 1.52 billion yuan/yoy -12% in 2023. At the end of 2023, Bosch Fund's non-monetary public offering scale was 531.6 billion yuan, an increase of 4.3% over the previous year. At the end of 2023, Bosch Fund ranked 7th in the non-monetary public offering scale and ranked 2nd in the bond-type public offering scale. China Merchants Fund (holding 45% of shares) had a non-monetary public offering of 575.6 billion yuan, an increase of 2.6% over the end of 2022. At the end of 23, China Merchants Fund ranked 4th in terms of non-monetary public offering, and ranked 1st in the size of bond-type public offerings. In 2023, it achieved operating income of 5.29 billion yuan/yoy -8%, and net profit of 1.75 billion yuan/ -3%. In total, the public offering business contributed 18% of the Group's profit in terms of equity ratio.
Investment analysis: Maintain an increase in holdings rating. Considering that the size of new development funds has remained weak since this year, we lowered the 24-25 market equity assumption, thereby lowering the 24-25 profit forecast and adding a 26-year profit forecast. The net profit for 2024-2026E is estimated to be 96 billion yuan, 108, and 119 billion yuan (originally forecast 24-25E 98 billion and 111 billion yuan), respectively, +10% compared with the previous year. The current closing price corresponds to 24E dynamic PB of 1.05 times. Considering that the market share of the company's brokerage business is in an upward channel, the continued release of signals of strict regulation of listed companies is expected to boost market preferences. The corporate brokerage and capital brokerage business will directly benefit and still maintain an increase in holdings ratings.
Risk warning: The downward pressure on the economy has increased; market share base transaction activity has declined sharply.