Incident: Fangzheng Securities released its 2023 annual report. During the reporting period, the company achieved operating income of 7.119 billion yuan, -8.46%; realized net profit to mother of 2.152 billion yuan, +0.21% year over year; the financial leverage ratio after excluding customer funds rose to 3.98 times, and the ROE (weighted) was 4.88%.

The asset-light business is under pressure, and the asset-heavy business has performed well. Affected by sluggish market trading sentiment and tightening financing policies, the company's asset-light business continued to be under pressure. The company's asset-light business revenue during the reporting period was 4.08 billion yuan, -15.58% over the same period last year. The asset-heavy business supported the company's performance. During the reporting period, the company's asset-heavy business revenue was 3.125 billion yuan, +8.62% over the same period last year.

The securities brokerage business has obvious advantages, and the scale of fund management is expanding rapidly. The company's net brokerage fee revenue was 3.274 billion yuan, -9.06% year-on-year; of this, the net revenue from the securities brokerage business was 2.174 billion yuan, and the market share of securities brokerage business was +0.28pct to 2.90% year-on-year as of 23Q4. Net income from the company's investment banking business fees was 211 million yuan, -60.38% year on year; the company's share and bond underwriting scale all declined in 2023, with equity and bond underwriting scales of -41.84% and -47.08% year-on-year, respectively, to 41.23 billion yuan and 19.682 billion yuan. The company's net revenue from asset management business fees was 181 million yuan, -23.15%; Fangda Fubon's fund management scale maintained rapid growth. The public fund management scale was +22.37% to 61,167 billion yuan, and the private equity asset management scale was +41.32% compared to the same period last year to 16.354 billion yuan.

The market share of the two finance business increased, and the increase in the scale of investment drove the revenue growth of the proprietary business. In terms of net interest income, the company's interest income was +6.59% year over year to 4.391 billion yuan, but the sharp increase in consolidated funds and bonds payable led to interest expenses +26.27% to 2,971 billion yuan, and net interest income -19.61% year over year to 1,421 billion yuan; as of the end of the reporting period, the company's balance of two loans was 30.893 billion yuan, and the market share was +0.17pct to 1.87% year over year. In terms of self-operated business revenue, the company's self-operated business revenue was +53.54% to 1.705 billion yuan, the main source of revenue growth; the scale of the company's financial investment increased rapidly. As of the end of the reporting period, the scale of financial investment was 98.668 billion yuan, +22.38% year-on-year.

The balance sheet structure has been optimized, and regulatory indicators have been greatly improved. As of the end of the reporting period, total assets excluding customer funds were +28.51% year-on-year to 18.217 billion yuan. The company focused on increasing leverage by issuing bonds, and the financial leverage ratio was +0.73 times 3.98 times compared to the same period last year. The company's regulatory indicators improved markedly. The parent company's liquidity coverage rate was +83.56% to 222.99% year over year, and the net stable capital ratio was +23.16% to 162.26% year over year.

Investment advice: The company's securities brokerage business has stable advantages, and its own business supports performance. After the financing environment is repaired, debt costs have declined, leverage ratio has rebounded, and subsequent ROE increases can be expected. The 2024-2026 operating income is expected to be +17.84%, +9.80%, +8.40%, net profit to mother +18.19%, +10.36%, +8.88%, EPS is 0.31, 0.34, 0.37 yuan/share, and PE corresponding to the closing price on March 28 is 26.47, 23.98, and 22.03 times. Give it a “buy” rating.

Risk warning: The macroeconomy falls short of expectations, market trading sentiment continues to be sluggish, and industry competition has intensified sharply