Yongan Futures' profit in 2023 is basically in line with our expectations
The company's revenue for 23 years was -32% year-on-year to 23.8 billion yuan, and the weighted average ROE was +0.3ppt to 6.0% year over year, and profit was basically in line with our expectations; 1Q24 revenue/net profit to mother was 43.4/80 billion yuan, -19%/-63% YoY, -14%/-54% month-on-month, and annualized ROE -4.4ppt to 2.5% yoy, lower than our expectations, mainly due to revenue reduction policies affecting fee revenue. The company's 1Q adjusted management rate was 49%, year-over-year/month-on-month -4.8/+13.9ppt.
Development trends
Risk management business development is slowing down, and business models are being innovated to improve service capabilities. 1) In 2023, the Risk Management Division's revenue was -33% YoY to $22.3 billion, with operating profit -37% YoY to $200 million, accounting for -16ppt to 22%; 1Q24 net revenue from other businesses, mainly based on margin trading, -76% YoY/-76% month-on-month to $11.34 million, including futures market hedging and own capital investment, was +84% YoY, reversing the loss to 170 million yuan YoY. As the overall development of the futures risk management industry is slowing down, the company continues to improve service capabilities through business model innovation. For example, in terms of margin trading, the first batch of standard warehouse receipts for industrial silicon and lithium carbonate futures were registered; the “offshore gas station” characteristic industry model was built, and selected as the first batch of “Qiangyuan Assistance Enterprise” production and finance service bases. In terms of market making, the company added 4 new futures and 3 options trading qualifications in '23. The product coverage continued to expand. In '23, it achieved market making volume +216% YoY and turnover +243% YoY. 2) In addition, the parent company's investment income in '23 was 190 million yuan (vs. loss of 2.6 million yuan in '22), and the size of the company's financial assets at the end of '23 was +25% year-on-year to 11.1 billion yuan.
The 23-year fee business performed steadily, and 1Q24 was affected by adjustments to revenue reduction policies. 1) The total net income from futures business fees and interest in 2023 was +0.4% to 1.43 billion yuan, corresponding to the company's domestic futures turnover -1% to 15.9 trillion yuan, market share -0.1ppt to 1.4%; customer equity at the end of the period was +1% to 45.7 billion yuan, and the corresponding conversion rate was +0.2ppt to 2.9% year-on-year. The total net income from handling fees and interest from 1Q24 futures business was -18% year-on-year to $360 million, or mainly due to adjustments in exchange revenue reduction policies and a reduction in the size of futures margins. 2) In addition, under the pressure of the capital market, the 2023 fund sales revenue was -46% to 60 million yuan, and the asset management business revenue was -44% year-on-year to 14.14 million yuan.
Overseas comprehensive service capabilities continue to improve, and the performance is outstanding. Overseas business revenue in 2023 was +39% to 280 million yuan, and operating profit was +163% to 140 million yuan, accounting for +9ppt to 15%.
Relying on the collaborative development of multiple sectors such as futures brokerage, securities, asset management, etc., the company continued to improve its comprehensive overseas service capabilities. At the end of the period, the equity ratio of overseas customers was +20% to US$580 million, the number of consignment fund products was +53% to 23, and counterpart fund sales were US$84.54 million.
Profit forecasting and valuation
Considering changes in the market environment and revenue reduction policy adjustments, we lowered our 24-year profit forecast by 18% to $760 million, and introduced a 25-year profit forecast of $890 million. The current stock price corresponds to 24/25e 26x/22x P/E, 1.5x/1.4x P/B. We lowered our target price by 11% to 17.3 yuan and maintained an outperforming industry rating (corresponding to 24/25e P/E 33x/28x, P/B 1.9x/1.9x, and 30% upside).
risks
Futures market turnover has declined sharply, regulatory policies are uncertain, and capital markets have fluctuated greatly.