Incident: CITIC Construction Investment revealed its 2023 annual report. 1) Performance Overview: In 2023, the company's revenue was 232 billion yuan/yoy -16%, mother profit 7.03 billion yuan/yoy -6%, weighted ROE 8.6% /yoy-1.42pct. On a quarterly basis, Q4's revenue was 4.86 billion yuan/yoy -0.1% /qoq -1%, and profit to mother was 1.34 billion yuan/yoy +24% /qoq -3%. 2) Key points: ① Non-operating expenses of 1.13 billion dollars in 23 years: 1) The company participated in the establishment of a special fund for advance compensation for amethyst storage incidents in the second quarter; 2) The company paid corresponding commitments in accordance with the “Implementation Measures on the Party Commitment System for Securities and Futures Administration Enforcement” in the fourth quarter. ② The company's management expenses in 2023 are 11.47 billion yuan/yoy +4%, which is expected to increase mainly due to travel expenses and other expenses.

Revenue split: The company's various businesses were relatively balanced, and net investment increased 50% year over year. 1) Looking at the revenue growth rate, the company's net investment in '23 was 6.90 billion yuan/yoy +49%, brokerage was 5.56 billion yuan/yoy -6%, investment bank 4.80 billion/yoy -19%, net interest 1.71 billion /yoy -28%, and asset management was 1.31 billion yo/yoy -28%. The 3 year-on-year decline in net interest was due to a rise in debt costs: 2.92 percent /yoy+0.2 pct of debt costs in '23. 2) Looking at the revenue structure (accounting for the main revenue of securities), net investment accounts for 33%, brokerage accounts for 27%, investment banks account for 23%, net interest accounts for 8%, and asset management accounts for 6%. (Note: Securities main revenue = operating income - other income - other business income - asset disposal income)

Investment business: The scale of stock and bond underwriting all ranked in the top 3 in the industry. Investment bank revenue may continue to be under pressure in 24 years. In 2023, the company completed equity financing of 94.8 billion yuan, ranking 2nd in the industry. Among them, the number of lead IPOs was 33, with a scale of 40.8 billion yuan, ranking 3rd in the industry; refinancing lead underwriters ranked 3rd in the industry with an underwriting amount of 54 billion yuan. The company sponsored 4 IPOs of central enterprises and ranked No. 1 in the industry for five consecutive years. The principal underwriting scale of bonds was 1,457 billion yuan, ranking 2nd in the industry. In terms of project reserves, as of the end of '23, the company had 61 IPOs under review, ranking 2nd in the industry; 24 equity refinancing projects (including convertible bonds) under review, ranking 2nd in the industry. In March of this year, the Securities Regulatory Commission issued four policy documents including “Opinions on Strictly Controlling Issuance and Listing Entry and Improving the Quality of Listed Companies (Trial)”. We believe that in 24, in the context of countercyclical regulation of the pace of IPO issuance, the scale of market IPOs will continue to decline, and the company's investment banking revenue will continue to be under pressure.

Brokerage business: The performance is better than other leading brokerage firms, and the revenue structure is gradually balanced. Among the top 10 brokerage firms in the industry in terms of total assets at the end of '23, the brokerage business of CITIC Construction Investment fell 6% year on year, the smallest decline. By the end of 2023, the total number of customers in the company's securities brokerage business was 13.37 million households/yoy +10.20%, and total customer assets were 5.14 trillion yuan; in the 23s, revenue from selling financial products increased 4% year on year, and the scale of financial product holdings increased 2% year on year. The revenue structure of the company's brokerage business is more balanced: the share of product business revenue in securities brokerage business revenue increased from 21% in 2019 to 43% in 2023, which is at the highest level in the industry. By the end of '23, the company had 317 brokerage branches, 57% of which were concentrated in five provinces and two cities (Beijing, Shanghai, Guangdong, Fujian, Zhejiang, Jiangsu and Shandong), including 55 branches in Beijing. It is the securities company with the largest number of business outlets in Beijing, laying the foundation for wealth management business development.

Investment business: Mainly fixed income assets, the volume and price of the investment business have risen sharply in 23 years. At the end of 23, the company's investment assets were 294.2 billion yuan/yoy +13%, and the investment leverage was 3.02 times/yoy+0.22 times. Specifically, the investment scale of corporate transactional bonds+other debt at the end of '23 was $183.6 billion, accounting for 62% of the invested assets. The estimated return on investment of the company in 2023 was 2.48% /yoy+0.52 pct.

Investment analysis: Maintain an increase in holdings rating. Considering recent regulatory statements to continue to adjust the pace of IPO issuance in a countercyclical manner, we lowered the 24-25 market IPO scale 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 62, 7, and 7.7 billion yuan (the original forecast 24-25E was 88.6 billion yuan and 9.95 billion yuan), respectively, -12%, +13%, and +9%, respectively. The transformation of the company's wealth management is at the forefront of the industry. As the revenue structure of the company's brokerage business becomes more balanced and revenue resilience is prominent; moreover, the Securities Regulatory Commission recently proposed “speeding up the construction of a strong financial country” and “cultivating first-class investment banks and investment institutions,” the company is expected to continue to benefit as a comprehensive large brokerage firm that ranks in the top 10 in the industry in terms of asset size and performance. If the company's 24-year PB valuation is restored to 2.43 times the 5% quantile since '22, there is room for an increase of about 9.3% compared to the 24E PB 2.22 times corresponding to the current closing price, so the company's holdings increase rating will be maintained.

Risk warning: The downward pressure on the economy has increased; market equity transaction activity has declined sharply; Evergrande Real Estate's suspected bond information disclosure violation has been investigated by the Securities Regulatory Commission. CITIC Construction Investment is the lead underwriter of the bond. If the intermediary agency fails to “be diligent and conscientious,” it may be punished by the Securities Regulatory Commission and bear joint and several civil liabilities.