Core views:
The decline in performance is slowing down, and leverage continues to decline. The company released its 2023 annual report, achieving operating income of 22.99 billion yuan, -11.87% YoY; net profit to mother of RMB6.156 billion, or -18.97% YoY.
Net profit for the quarter in Q1/Q2/Q3/Q4 was +35.95%/-40.3%/-51.8%/-2.3%, respectively. In 2023 (excluding agent payments), the leverage ratio fell to 5.17 times, and the weighted ROE fell to 6.43%. The company's share of overseas business revenue increased from 20% to 26% in 2023, with outstanding internationalization capabilities.
Pan-wealth management highlights advanced capabilities and helps steady development. In 2023 (1), brokerage business net revenue was 4.53 billion yuan, -13% year-on-year. The total number of wealth management clients was 6.8038 million, an increase of 17.0% over the previous year; product holdings have been growing for four consecutive years, and financial inclusion products and services have been continuously upgraded. The scale of consignment sales was -4.7% year-on-year; the sales revenue was 1,255 billion yuan, +3.5% year-on-year, accounting for 27.7% of the brokerage business. (2) In 2023, the asset management business achieved revenue of 1,213 billion yuan, -11% year-on-year; the fund business achieved revenue of 1,756 billion yuan, +13% year over year.
The investment banking business declined significantly due to market pressure. In 2023 (1), revenue from proprietary investment was 10.898 billion yuan, -2% year-on-year. The decline in private equity investment and the decline in the valuation of public investment REITs dragged down the investment business.
The company paid $84.265 billion in derivatives, -15% year over year. OTC derivatives hedged positions of 122.4 billion yuan, accounting for 87% of hedged holdings. (2) Investment banking business revenue was 3.7 billion yuan, -47% year-on-year. The leading international advantage was maintained, and the merger and acquisition business ranked first in the country for nine years. (3) The revenue of the two finance loans was 2.7 billion yuan, +2.7% year-on-year.
Profit forecasting and investment advice. Under the development wave of industry leadership, internationalization, and customer base institutionalization, the company's many businesses are at the forefront of the industry, with outstanding comprehensive advantages, and leading the industry in terms of capital efficiency and capabilities. It is expected that the company will consolidate its outstanding advantages and maintain its leading position. The company is expected to have net assets of $22.87/23.77 per share in 2024-2025. Given 0.4-1.4 times the PB core of H shares in the past five years, H shares are given a PB valuation of 0.60 times in 2024. The reasonable value is HK$14.85 per share, maintaining the H share “buy” rating. (HKD/CNY=0.92)
Risk warning. The economic downturn exceeded expectations, policy changes fell short of expectations, equity market fluctuations, etc.