Matters:

Fangzheng Securities issued 1 billion yuan of short-term loans with a coupon interest rate of 2.03%.

Commentary:

This issuance of short-term loans is Fangzheng Securities's first short-term loan since shareholder risk was implemented, and corporate bond financing instruments have been further improved.

The requirements for securities companies to issue short loans are quite strict, including the liquidity coverage rate continuing to be higher than the industry average in the past 6 months; not being subject to administrative penalties for major offenses in the past 2 years. Until 2024, the company was unable to issue short-term loans due to shareholder risk events and restrictions on regulatory indicators. The issuance of short-term loans by the company this time is a further enhancement of bond financing instruments.

Short-term loans mainly help companies in two ways:

1) Increase interest spreads. Recently, interest rates in the bond market have continued to decline. Coupled with the gradual implementation of corporate shareholder risks, corporate bond financing costs have continued to decline. The interest rate for issuing the company's past stock bonds was relatively high. Issuing short-term bonds helped the company reduce its overall debt ratio, replace high-interest bonds, and increase the company's interest spreads.

Currently, the company's annualized return on investment is 2.5% to 2.8%, which is expected to significantly increase the company's interest spread income;? 2) Increase leverage. In the past, the company mainly increased financial leverage through securities corporate bonds and the sale and repurchase of financial assets. The issuance of short-term loans has expanded the bond financing toolbox, helping the company to further increase its leverage limit and achieve ROE growth.

Investment advice: Continue to be optimistic about the company's leverage increase expectations during the year, and be optimistic about the increase in leverage brought about by the company's ROE when market sentiment rebounds × the excess ROE growth brought about by the increase in ROA. We maintain the company's 2024/2025/2026 EPS forecast of 0.31/0.35/0.39 yuan, BPS of 5.78/6.11/6.48 yuan, respectively. The corresponding PB of the current stock price is 1.40/1.32/1.25 times, respectively, and the ROE is 5.49%/5.81%/6.13%, respectively.

Maintain the company's 2024 PB valuation of 1.6 times, corresponding to the target price of 9.3 yuan, and maintain the “recommended” rating.

Risk warning: Risk of shareholder changes, increased downward pressure on the economy, reduction of capital holdings in the north, etc.