Incident: Zhongtai Securities released its 2023 annual report, which is in line with the performance forecast range. Achieved annual revenue of 12.8 billion yuan/yoy +36.9%; realized net profit of 1.8 billion yuan/yoy +204.9%, of which 4Q23 profit -0.9 million/year-on-year loss narrowed/qoq -137%; and weighted ROE in 2023 was 4.7% /yoy+3.1 pct.

The combination of 10,000 funds has driven a high increase in asset management revenue, a significant improvement in investment income, and outstanding investment bank performance. In 2023, the company's securities main revenue was 10.99 billion yuan/yoy +50%. 1) Main revenue split: Brokerage, investment banking, asset management, net interest, and net investment achieved revenue of 29.5, 13.5, 19.9, 17.3, and 28.1 billion yuan, respectively, -20%, +33%, +260%, -19%, and +840%, respectively; 2) Looking at the main revenue structure, brokerage accounts for 26.9%, investment banks account for 12.3%, asset management accounts for 18.1%, net interest accounts for 15.7%, and net investment accounts for 25.6%.

Investment leverage has remained steady, and returns have improved markedly. At the end of the period, the company's operating leverage was 3.43x/yoy-0.14x/qoq-0.08x, and the investment leverage was 1.72x/yoy-0.06x/qoq+0.01x. The financial investment scale at the end of the period increased by 1% over the same period, and the leverage level remained steady. It is estimated that the company's annual return on investment was 4.12% /yoy+4.6pct, a significant improvement over the previous year; after excluding the 658 million yuan equity revaluation income generated by the merger of 10,000 funds, the annual return on investment was estimated to be 3.15% /yoy+3.7 pct.

It also showed that 10,000 funds increased asset management revenue, and that the large asset management line contributed nearly 20% of profits. The company acquired 11% of Wanjia Fund's shares last year, achieving a 60% holding merger, and boosting asset management business revenue +260%. Looking at performance: 1) Zhongtai Asset Management (60% shareholding): achieved revenue of 570 million/yoy -11% in 23, net profit of 220 million/yoy +85%, contributing 7% of profit; 2) Wanjia Fund (holding 60% of shares): achieved revenue of 1.8 billion/yoy +12% in 2023, net profit of 360 million/yoy +10%, contributing 12% to profit. Looking at the scale of asset management, China and Thailand's asset management scale was 122.1 billion yuan/yoy -44%, of which the scale of the single asset management business dropped sharply (54.7 billion yuan/yoy -59% at the end of the period); Wanjia Fund's non-cargo AUM was 157.5 billion yuan/yoy -13%, ranking 28th in the industry.

The scale of IPO underwriting surged against the market, and the investment banking business performed brilliantly. The company's IPO underwriting scale increased dramatically throughout the year, driving investment bank revenue +33% year over year and against the market. According to the issuance date statistics, the main underwriting scale of the company's IPO in '23 was 9.2 billion/yoy +143%, and the refinancing underwriting scale was 9.9 billion dollars/yoy -27%; and the bond underwriting scale was 129.5 billion/yoy +39.5%. As of 3/29, the number of the company's IPO reserve projects was 10, ranking 21 in the industry, and the number of refinancing reserve projects was 7, ranking 12 in the industry.

The brokerage business went into the market along with it, and the scale of financial product holdings declined slightly. In terms of proxy purchasing business, the company's net revenue in 23 was 2 billion yuan/yoy -19%, of which institutional commission revenue was 340 million yuan/yoy -34%. In terms of consignment sales business, the company's financial product holdings were 41.8 billion yuan/-6% year-on-year, achieving 220 million yuan/yoy -26% of revenue. In terms of credit business, the company's securities financing balance at the end of the period was 32.9 billion yuan/+6% year over year, and the market share was 2.0% /year over year.

Investment analysis opinion: Maintain a “recommended” rating. The estimated net profit of Zhongtai Securities in 2024-2026E will be 1.92 billion yuan, 2.09 billion yuan, and 2.39 billion yuan, respectively, +7%, +9%, and +14% compared with the same period last year. The 3/29 closing price corresponds to the company's 24-26E dynamic PB of 1.2, 1.15, 1.09x, and dynamic PE of 24, 22, 19x.

Risk warning: capital market reform falls short of expectations; capital market fluctuates greatly; economic recovery falls short of expectations.