Description of the event
China Galaxy released its 2023 annual report. During the reporting period, it achieved operating income of 33.64 billion yuan, +0.01% year on year, net profit to mother of 7.88 billion yuan, +1.43% year over year, and a weighted average return on net assets of -0.69 pct to 7.52% year on year.
Incident comments
Profitability declined in weak markets, and self-employment revenue was a source of resilient performance. In 2023, China Galaxy achieved revenue and net profit to mother of 336.4 billion yuan and 7.88 billion yuan, respectively, +0.01% and +1.43% year over year, weighted ROE was 7.52%, -0.69pct year on year. After excluding customer funds, the leverage was 4.16X, or -13.8% year on year. By business line, brokerage, investment banking, asset management, interest, and proprietary income were 55.0, 5.5, 4.6, 41.6, and 7.66 billion yuan, respectively, -13.6%, -19.8%, +3.7%, -19.4%, and +36.9% year-on-year respectively.
The brokerage business invigorates high-net-worth clients, and the two finance companies have a stable market share. 1) In 2023, the company's customer base continued to strengthen. The number of individual customers exceeded 15.5 million, +8.9%, and the net revenue market share in Q3 was 4.79%, compared with +0.17pct at the end of 2022. The net assets of the high-net-worth customer service brand “Galaxy Jinyi” exceeded 160 billion yuan, +195% YoY; 2) The market share of Liangfinance was 5.09%, -0.05pct year on year. The average performance guarantee ratio was 252%, YoY- 30.0pct Credit impairment losses of $34 million, compared to $153 million for the same period in 2022.
Proprietary assets contracted month-on-month in Q4, and pressure on regulatory indicators slowed. By the end of 2023, the company's financial assets were 351 billion yuan, -7.5% at the end of Q3 and +8.9% compared with the end of 2022. Among them, stocks, funds, and bond assets were 303, 270, and 208.7 billion yuan respectively, +105.2%, -12.6%, and +2.2% year-on-year respectively. The estimated return on static investment was 3.4%, +0.2pct year over year. Convertible bonds were successfully converted to reduce the pressure on regulatory indicators. The capital leverage ratio was +1.2pct to 12.0% at the end of the first half of the year.
The scale of investment bank bond underwriting has increased rapidly, and the Galaxy Gold Exchange product system has been further improved. 1) In 2023, the company's investment bank's IPO and refinancing scale were $0.07 billion and the bond financing scale was 358 billion yuan, +41.75% year over year, achieving 2 single IPO projects passed through the Exchange Listing Committee meeting; 2) By the end of 2023, the total asset management scale of the company was 94.5 billion yuan, or -17.9%. The asset management subsidiary Galaxy Jinhui achieved operating income and net profit of 439 million yuan and 42 million yuan respectively, -8.4% and +223.1% year-on-year respectively. In 2023, Galaxy Jinhui accelerated the layout of featured products, completed the creation of products based on themes such as ESG and dividends, and further improved the product spectrum.
As a central enterprise brokerage firm owned by Huijin, China Galaxy is expected to benefit from an improvement in the market pattern under the wave of supply-side reforms in the brokerage industry. At the same time, under the policy guidance of supervision and support, the company is expected to usher in the optimization of risk control indicators, further open the upper limit of supervision, and raise the level of ROE. The company's net profit for 2024-2025 is estimated to be 8.71 billion yuan and 9.27 billion yuan, respectively. The corresponding PE is 15.0 and 14.1 times, respectively, and the corresponding PB is 0.92 and 0.85 times, respectively, maintaining the purchase rating.
Risk warning
1. A sharp correction in the equity market