Matters:
CICC released its 2023 annual report, with annual revenue of 22.99 billion yuan (-11.9% YoY), net profit to mother of 6.16 billion yuan (-19% YoY), and ROE of 6% (YoY -2.2pct). At the end of the reporting period, the company's net assets were 104.6 billion yuan (+5.5% compared to the beginning of the period), the financial leverage ratio was 5.39 times (-0.44 times the previous year), and the capital leverage ratio was 11.44% (+0.2pct year over year).
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Commentary:
Changes in main business composition: Asset-light business revenue contributed 52.6% (-8.5pct year over year), broker/investment banking/asset management revenue was -13.4%/-47.2%/-11.2%, respectively; heavy capital business revenue contributed 40.1% (+3.4pct year over year), self-employment/credit business revenue contributed -0.5%/-30.5% year-on-year, respectively.
Asset-light businesses are under pressure.
1) The decline in turnover dragged down brokerage business revenue: the average daily share base turnover for the whole year was 887.2 billion yuan (-5.23% year over year), and the company's net brokerage fee revenue fell to 4.53 billion yuan (-13.4% year over year). Among them, agency securities/institutional business revenue was -20.5%/-20.0% year-on-year, respectively, and revenue from consignment sales business was +3.5% year-on-year, showing results in wealth management transformation.
2) The scale of IPOs and refinancing underwriting declined significantly: Affected by the Securities Regulatory Commission's phased tightening of the pace of IPOs and refinancing, the annual industry IPO/refinancing/corporate bond+corporate bond underwriting scale was -39.2%/-24.7%/+11.7%, respectively. The company's A-share IPO underwriting amount was 32.24 billion yuan (-58.6% year over year), and the refinancing underwriting amount was 82.54 billion yuan (-34% year over year). The decline was far higher than that of the industry. As a result, net income from investment bank fees fell to 3.7 billion yuan (-47.2% year over year).
3) The contraction in the scale of asset management affected asset management revenue: At the end of the reporting period, the asset management scale was 656.88 billion yuan (-19.5% YoY), and the net revenue from asset management fees was 1.21 billion yuan (-11.2% YoY). By the end of 23Q4, CICC Fund, a wholly-owned subsidiary, had a non-cargo base of 61.8 billion yuan (+10.6% year over year), which was growing against the market under the cold conditions of the New Development Fund.
Revenues from heavy capital businesses declined year over year.
1) Steady self-operated business: The scale of proprietary assets expanded slightly to 35.30 billion yuan (+4.2% year over year), self-operating yield +0.9 pct year over year to 3.99%, and the company's self-operated business revenue of 10.56 billion yuan (-0.5% year over year), which remained basically the same.
2) Growth in the scale of the two finance business: At the end of the reporting period, the total market balance of two finance loans was 1650.9 billion yuan (+7.2% year over year), and the company's two finance balance was 35.81 billion yuan (+13.2% year over year). The increase was higher than the market, driving the market share of the two finance loans to a slight increase of 2.17% (+0.1 pct year over year). The company's net interest income is 1.34 billion yuan (-1.02 billion yuan in the same period last year), mainly due to increased financing interest expenses due to rising overseas interest rates.
Investment advice: Considering that market trading activity falls short of expectations and the decline in the scale of the IPO, which affects the company's main business, the profit forecast was lowered. We expect the company's 2024/2025/2026 EPS to be $1.51/1.85/2.16 ($2.11/2.60 before 2024/2025) and 19.33/20.76/22.43 for BPS ($20.49/22.74 before 2024/2025). The current stock price for A-share PB is 1.67/1.56/1.44 times, and the PB for Hong Kong stocks is 0.45/0.42/0.39 times, respectively. Optimistic about the room for further expansion of the company's inventory after the optimization of regulatory indicators, CICC H shares were given a target valuation of 0.6 times PB in 2024, corresponding to the target price of HK$12.6, maintaining the “recommended” rating.
Risk warning: Market trading volume declined; risk appetite declined; capital market innovation fell short of expectations; real economy recovery fell short of expectations.