In 2023, CITIC Construction Investment achieved operating income of 232 billion yuan, -16% year over year; net profit to mother was 7 billion yuan, -6.3% year over year. At the end of 2023, the company's total assets were 522.75 billion yuan, +2.7% YoY; net assets to mother were 97.5 billion yuan, +4.5% YoY. Annualized ROE 8.59%, -1.4 pct year over year. Operating leverage was 4.4 times higher than in previous years.

Overall overview: Both revenue and profit have declined, and the structural highlight is asset management and self-management. In 2023, we achieved revenue of 23.2 billion yuan, -16% year-on-year; Q4 revenue in a single quarter was 4.9 billion yuan, the same year-on-year, and -1% month-on-month. Net profit to mother was 7 billion yuan, -6.3% year on year; Q4 net profit to mother was 1.34 billion yuan in a single quarter, +25% year over year, -3% month on month. At the end of 2023, the company's total assets were 522.75 billion yuan, +2.7% YoY; net assets to mother were 97.5 billion yuan, +4.5% YoY. The annualized ROE was 8.59%, -1.4pct year over year. Operating leverage was 4.4 times higher than in previous years. Proprietary business/brokering/investment banking/credit/asset management/other businesses accounted for 33%/27%/23%/8%/6%/2% of the main business, respectively, +11/-2/-5/-3/2/-3 pct.

Fee business: brokerage and investment banks are under pressure, and asset management transformation has achieved remarkable results. (1) The market drags down brokerage revenue, and the business structure develops in a balanced manner. Market trading was lackluster. In 2023, brokerage business revenue was 5.56 billion yuan, -6% year-on-year; Q4 brokerage revenue in a single quarter was 1.2 billion yuan, -9% year-on-year, and -19% month-on-month. By category, agent trading revenue in 2023 was 3.8 billion yuan, -13% year over year; seat rental revenue was 1.1 billion yuan, -16% year over year. Revenue from consignment financial products was +4% year-on-year, and financial product holdings were +2.4% year-on-year. The brokerage business structure is more balanced, with product revenue rising from 21% in 2019 to 43% of securities brokerage revenue in 2023, which is at the leading level in the industry. (2) Investment banks are under significant pressure. Investment banking revenue in 2023 was 4.8 billion yuan, -19% year-on-year; Q4 investment banking revenue in a single quarter was 900 million yuan, -34% year-on-year and -29% month-on-month. In 2023, the company completed 33 A-share IPOs, with an amount of 40.75 billion yuan, ranking 3rd in the industry; 34 refinancing companies, with a lead underwriting amount of 54 billion yuan, or -28% year over year, ranking 3rd in the industry. Bonds underwrote 1.5 trillion yuan, +18% year-on-year, ranking 2nd in the industry. (3) Outstanding performance in asset management, accelerated transformation of public offering business. Asset management revenue in 2023 was 1.3 billion yuan, +34% year over year; Q4 single quarter revenue was 360 million yuan, +45% year over year, +7% month on month. CITIC Construction Investment Fund actively adjusted its business structure and enriched its product system. By the end of 2023, CITIC Construction Investment Fund AUM was 93.76 billion yuan, of which AUM 68.15 billion yuan was publicly funded, +21% over the same period last year.

Capital business: Self-employment maintains a strong momentum, and credit business is under pressure. (1) Self-employment is strong. Proprietary revenue in 2023 was 6.8 billion yuan, +51% year-on-year; Q4 self-operating revenue in a single quarter was 1.8 billion yuan, 8.2 times that of the same period in 2022, and continued to increase 130% from month to month. Q4's self-operation reversed the decline in Q3 revenue, which shows that the company is flexible in changing positions and allocations. At the end of 2023, transactional financial assets were $214.2 billion, +14% year over year.

The company vigorously developed non-directional self-management, generating 4.2 billion yuan in derivative financial products, +46% over the same period last year. (2) Interest income declined and asset quality improved. Net interest income in 2023 was 1.7 billion yuan, -28% YoY; Q4 revenue in a single quarter was 200 million yuan, -67% YoY and -53% YoY. In 2023, the company raised 56.4 billion yuan, +7% year on year; bought and resold financial products of 13.9 billion yuan, -45% year over year. Asset quality improved. Credit impairment losses of 130 million yuan were transferred back in 2023, and 290 million yuan was calculated in 2022. The contraction in the size of shares, self-employment and leveraged interest expenses together dragged down net interest income. Interest expenses in 2023 were $8.4 billion, +18% YoY.

Investment advice: Maintain a “Highly Recommended” rating. The company continues to improve its various businesses, has rich management experience, and its ROE has long been superior to traditional large brokerage firms. The company's investment banking label is still bright, and the wealth management transformation has achieved remarkable results. Self-employment is mainly fixed income investments, and the derivatives business is progressing steadily. Looking ahead to the future market, the policy attitude to support the development of the capital market is firm, and market sentiment has clearly recovered, which is beneficial to the brokerage sector. Considering the market's peripheral environment, we revised the original profit forecast. The company's net profit for 24/25/26 is estimated to be 7.3 billion/ 8.1 billion/ 8.6 billion, +3.6%/+11.5%/+6.3% year-on-year. The company's target price is 28.19 yuan, which is 30 times PE in 2024, with a space of about 28%, maintaining a highly recommended rating.

Risk warning: Policies are not as strong as expected, market fluctuations have intensified, and the company's market share has not increased as much as expected.