Description of the event
Huatai Securities released its 2023 annual report. During the reporting period, it achieved operating income of 36.58 billion yuan, +14.2% year on year, net profit to mother of 12.75 billion yuan, +15.4% year on year, and a weighted average return on net assets of +0.63 pct to 8.12% year on year.
Incident comments
Profitability increased against the market, and high self-employment income was the main driver. In 2023, Huatai Securities achieved revenue and net profit of 36.58 billion yuan and 12.75 billion yuan respectively, +14.2% and +15.4% year on year, weighted ROE was 8.12%, +0.63pct year on year. After excluding customer funds, the leverage was 4.18X, +1.0% year on year. By business line, brokerage, investment banking, asset management, interest, and proprietary income were 59.6 billion yuan, 30.4, 42.6, 9.5, and 14.26 billion yuan, respectively, -15.8%, -24.5%, +12.9%, -63.8%, and +96.7% year-on-year respectively.
Changle Wealth Connect empowers the retail brokerage business, and its market share remains stable. 1) In 2023, Huatai Securities's stock trading base had a turnover of 37.2 trillion yuan, -4.1% year over year, estimated market share was 7.7%, -0.10pct year on year, and the estimated net commission rate was 0.013%, -9.6% year over year; 2) The number of monthly active users of the company's securities app Zengle Wealth Connect was 9.064 million people, or -2.2%. The proportion of customers trading through Zengle Wealth Connect reached 96.8%, +0.05pct year over year.
Proprietary asset expansion accelerated, and return on investment rebounded. By the end of 2023, the total financial assets of the company were 480 billion yuan, +16.8% year-on-year, of which stocks, funds and bonds were +20.1%, +35.6%, and +12.4% year-on-year respectively to 1237, 61.8, and 262.1 billion yuan. The estimated return on static investment was 3.2%, +1.4pct year over year. Judging from regulatory indicators, the net stable capital ratio and liquidity coverage ratio at the end of the year were 130.8% and 152.5% respectively, +1.51 and -14.06 pct compared to the previous year, which is still higher than the warning standard (120%).
The scale of the asset management business stabilized, and public equity subsidiaries performed well. By the end of 2023, the company's total asset management scale was 475.5 billion, -0.9% year-on-year, of which public funds accounted for 20.2%, +0.8pct year on year. The scale of asset management stabilized, and the share of public funding continued to increase.
The estimated rates for pooled asset management and public fund management were 0.20% and 0.89%, -0.04 and -0.36pct, respectively. The rates declined. Public equity subsidiaries performed well. Huatai Berry and China Southern Fund achieved net profit of 5.0 billion yuan and 2.01 billion yuan respectively, +32.2% and +13.6% year-on-year, contributing 1.9% and 6.5% to the parent company's net profit, respectively.
Investment banks' IPO market share has declined, and bond underwriting is growing faster. In 2023, the scale of the company's IPO, refinancing, and bond financing was 174, 384, and 666.2 billion yuan respectively, which was -45.7%, -24.4%, and +34.6% year-on-year respectively. The estimated market shares were 4.8%, 5.4%, and 0.9%, respectively, year-on-year, -1.28, +0.85, and +0.13pct, respectively. The company's IPO market share declined, and the share of equity refinancing and bond underwriting increased.
The market share of the two finance companies is stable, and the quality of assets is consolidated. At the end of 2023, the company's two-finance market share was 7.4%, +0.1 pct year on year, stock pledge size was 26.05 billion, 30.1% year on year, maintaining a guarantee ratio of 218.7%, and -25.4 pct year on year. Credit impairment losses of $411 million were transferred back, compared to 485 million last year.
As a pioneer in brokerage technology empowerment, Huatai Securities has successfully built leading technology platforms such as “Zangle Fortune Connect” and “Xingzhi”. The company's leading layout in wealth management and fintech is expected to continue to have a positive effect. The company's net profit from 2024-2025 is expected to be 131.9 billion yuan and 15.83 billion yuan, respectively. The corresponding PE is 9.5 and 7.9 times, respectively, and the corresponding PB is 0.65 and 0.60 times, respectively, maintaining the purchase rating.
Risk warning
1. The equity market has been drastically reduced; 2. Regulatory policies have been tightened.