Matters:
The company disclosed its 2023 annual report, with total revenue of 17.09 billion yuan (-8.7% YoY), net profit to mother of 2.75 billion yuan (-8.5% YoY), and net assets to mother of 78.75 billion yuan (+1.8% compared to the beginning of the period).
Commentary:
Annual ROE was 3.5% (-0.7pct year over year), DuPont split:
1) Leverage: Leverage has recovered somewhat. The financial leverage ratio is 3.82 times (+0.32 times year over year). The company began refinancing in 2022, and net assets increased significantly, and leverage declined; during the reporting period, leverage gradually rebounded to the average over the years. In terms of debt structure, interest-bearing liabilities increased by a cumulative total of 27.3 billion yuan, of which sales and repurchase of financial assets were +11.4 billion yuan, mainly from proprietary business leverage; bonds payable at +4.4 billion yuan; and consolidated capital of +17.3 billion yuan, mainly short-term interbank loans.
2) ROA decreased to 1.0% (-0.2pct year over year). It is mainly affected by the decline in market sentiment and the decline in light capital business revenue.
In terms of revenue structure: Revenue from light capital businesses all declined to a certain extent. Revenue from brokerage business was -9.8%, revenue from investment banking business -12.9%, and revenue from asset management business was -23.3% year-on-year. Revenue from the light capital business has declined, and changes in personnel costs are relatively rigid, which may lead to an increase in the company's light capital business cost ratio. Revenue from heavy capital businesses increased, with net interest income +7.6% year over year and proprietary business revenue +25.7% year over year. The bond market is relatively prosperous, and the yield from self-employment has increased, driving the company's self-operated business revenue growth.
In terms of interest spreads: Benefiting from the decline in the market bond financing cost ratio, the debt cost ratio fell to 2.6% (-0.3 pct year on year), and the interest spread widened to 1.3% (+0.3 pct year on year), protecting the stability of ROA to a certain extent.
Business revenue level:
1) Asset management revenue was 2.03 billion yuan (-23.3% YoY), and the average monthly AUM for the mixed stock base was 6.9 trillion yuan (-9.0% YoY). Public fund rate reform progressed, and business revenue declined.
2) Brokerage revenue was 2.78 billion yuan (-9.8% YoY), and the average daily market turnover was 877.2 billion yuan (-5.23% YoY). The decline was slightly higher than the industry average. Structurally, revenue from the securities brokerage business was -10.0% year-on-year, and revenue from the consignment financial products business was -13.5% year-on-year. Market sentiment has declined, and business revenue growth has declined.
3) Investment banking revenue was 15.1 billion yuan (-12.9% YoY), and the scale of industry IPO/refinancing/corporate bond+corporate bond underwriting was -39.2%/-24.7%/+11.7%, respectively. The growth rate of the company's investment banking business revenue may be higher than the industry average.
4) Proprietary business revenue of 2.39 billion yuan (+25.7% YoY) and net interest income of 1.76 billion yuan (+7.6% YoY), both increased. Among them, the return on self-employment was 1.4% (+0.1 pct year on year), and the return on heavy capital business was 2.1% (+0.2 pct year over year).
Investment advice: The company's performance is in line with expectations, and continue to pay attention to the long-term logic of the company's wealth management transformation. The profit forecast was lowered considering that the recovery in market sentiment fell short of expectations. We expect the company's 2024/2025/2026 EPS to be 0.35/0.38/0.42 yuan (the pre-2024/2025 value was 0.73/0.82 yuan), and the BPS will be 9.14/9.43/9.46 yuan respectively. The corresponding PB is 0.90/0.87/0.87 times, and the ROE is 3.79%/4.04%/4.47%, respectively. Taking into account the economic environment and market risk appetite adjustments, and referring to comparable peer valuations, we gave the company a PB valuation of 1.2 times 2024, corresponding to a target price of 11.0 yuan, maintaining a “recommended” rating.
Risk warning: Market trading volume declined; risk appetite declined; capital market innovation fell short of expectations; real economy recovery fell short of expectations.