Key points of investment
Incident: CICC released its 2023 annual report. The company's total revenue and other revenue for 2023 was 35.446 billion yuan, down 5.22% year on year; net profit to mother was 6.156 billion yuan, down 18.97% year on year.
The investment banking business dragged down the annual results, and the overall performance of the asset-light business was poor: in 2023, the transaction fee and commission revenue of MIC companies was -23% year-on-year to 13.8 billion yuan. The contraction in revenue from the fee business constituted the main reason for the decline in the company's performance. 1) Weak market sentiment was compounded by tightening regulations, and investment banking business revenue declined sharply. In 2023, due to the Securities Regulatory Commission's phased tightening of IPO refinancing and weak market sentiment, A-share/Hong Kong IPOs raised -39%/-56% year-on-year to 356.5 billion yuan/HK$46.3 billion/, respectively. The scale of the company's investment banking exhibition business was also drastically reduced due to the impact of the market environment. The underwriting amount for A-shares and Hong Kong IPOs was -39%/-48% to 32.2 billion yuan/500 million US dollars, respectively, resulting in the company's underwriting and sponsorship business revenue of -50% to 3.2 billion yuan compared to the same period. 2) Trading activity declined, and brokerage revenue declined year-on-year. The average daily share base turnover of the entire market in 2023 was -2% year-on-year to 992.1 billion yuan, and the company's brokerage revenue in 2023 was -15% year-on-year to 5.7 billion yuan. The product holding scale of the company's wealth management business is about 350 billion yuan, and the scale has been growing for four consecutive years; the total asset value of customer accounts is RMB 2.88 trillion, an increase of 4.3% over the previous year. The company's profitability in the wealth management business is expected to gradually materialize after trading sentiment picks up. 3) Asset management business revenue increased slightly. Revenue from the company's asset management business was +2% to 3.3 billion yuan, mainly due to a significant increase in the scale of public fund management (+25% to 143.4 billion yuan over the same period last year).
Net interest expenses continued to expand, and investment returns were relatively steady: 1) Net interest expenses continued to rise in a high interest rate environment. The company's net interest expenditure in 2023 was +30% to 1.3 billion yuan (interest income/interest expense +15%/+17% to 94/10.7 billion yuan, respectively). It is estimated that it is mainly an increase in financing interest expenses due to rising overseas interest rates (+61% to 2.2 billion yuan YoY).
2) Investment income was basically the same year over year. The company's investment income in 2023 was -0.5% to 10.6 billion yuan, of which net income from equity investment was +18% to 6.6 billion yuan, mainly due to the increase in income from securities held by the Science and Technology Innovation Board and the increase in investment income from derivatives businesses in the volatile market; net income from bond investment was +18% year-on-year to 3.8 billion yuan, mainly due to higher bond market conditions. 3) Other earnings increased dramatically, mainly driven by exchange earnings. The company's other earnings in 2023 were +188% to $1.7 billion, of which exchange gains from foreign exchange derivatives were +170% to $1.9 billion.
Profit forecast and investment rating: Since 2024, the regulatory environment in the securities industry has continued to be tightened, limiting the profit growth of securities companies, so we lowered our previous profit forecast. We expect the company to achieve net profit of 6.2.40/7.129 billion yuan (previous value: 81.86/9.812 billion yuan) in 2024-2025, with corresponding growth rates of 1.36%/14.24%, respectively. The company is expected to achieve net profit of 8.261 billion yuan in 2026, corresponding to a growth rate of 15.89%. The current market capitalization corresponding to 2024-2026 PB (H) is 0.42/0.39/0.35 times, respectively. Optimistic about the company's long-term advantages in investment banking and wealth management business, maintaining a “buy” rating.
Risk warning: 1) The equity market fluctuates greatly; 2) Stricter regulations inhibit industry innovation.