Incident: CITIC Securities announced its 2024 quarterly report, which was better than expected (forecasted profit of -11% YoY).
1Q24 achieved net profit of 4.91 billion yuan/yoy -8%, and revenue of 13.75 billion yuan/yoy -10%. The weighted average ROE (non-annualized) was 1.88% /yoy-0.19pct.
Performance is still steady, and is expected to be better than that of peers. Investment banking business is under pressure, and management expenses have declined by double digits. 1) Revenue split: 1Q24 brokerage, investment banking, asset management, net interest, and net investment income were 24.4, 8.7, 23.6, 3.3, and 6.33 billion yuan, respectively, accounting for 19.4%, 6.9%, 18.7%, 2.6%, and 50.2%, compared with -6%, -56%, -6%, -44%, and -6%, respectively. Investment banking business was clearly under pressure due to policy tightening; 2) Double-digit decline in management expenses: 1Q24 management expenses of 6.180 million/yoy-16% /qoq -22% of management expenses during the reporting period Rate 49.0% /yoy-0.5pct..
Investment leverage expanded slightly, and returns remained steady. Operating leverage at the end of the period 4.52x/yoy+0.08x/qoq+0.17x, investment leverage (investment assets/net assets) 2.98x/yoy+0.16x/qoq+0.20x, financial investment scale 8375 billion yuan/yoy +15% /qoq +12%, of which other equity instruments increased to 65.2 billion yuan ($9.5 billion at the end of 23), which is expected to increase mainly due to the increase in perpetual bond investment; the return on investment remains stable, and it is estimated that 1Q24 single-quarter return on investment is 3.19yo%- 0.8pct/qoq+0.8pct
The investment banking business maintained its leading position, but declined year-on-year under a high base. According to statistics from the release date, 1Q24's A share IPO underwrote 4 orders (1Q23 and 4Q23, respectively), with an underwriting scale of 5.1 billion dollars/yoy -79%. The same large decline was mainly due to the high base in the same period last year and the impact of the overall tightening of equity financing; 13 refinancing underwriting orders (1Q23 and 4Q23, 19 and 26, respectively), underwriting scale was 141 billion/yoy -65% /qoq -54%.
In terms of project reserves, at the end of March, 76 IPOs were under review and 55 were under refinancing, ranking first in the industry. In terms of bond underwriting, 1Q24 underwrote an amount of 394.6 billion yuan/yoy +5% /qoq -19%.
The resilience of the leaders continues to be verified, and the company is optimistic about benefiting from supply-side reforms in the medium to long term. Under extreme market fluctuations in January, the company's overall profit remained relatively stable and continued to outperform its peers. Looking ahead, the new “National Nine Rules” set the main line for long-term capital market construction. The 4/25 State Council report proposed concentrating efforts on building a “national team” for the financial industry. Improving and strengthening high-quality leading brokerage firms and speeding up the construction of first-class investment banks is a long-term development direction. As an absolute leader in the industry, the company is expected to benefit in the long term. Furthermore, the company was affected by Liangang Optoelectronics and CNNC's titanium dioxide incident in the early stages, causing a sharp decline, and it is expected that it will gradually recover.
Investment Analyst Opinion: Maintaining the “Highly Recommended” rating. The estimated net profit of CITIC Securities in 2024-2026E will be 20.2 billion yuan, 21.7 billion yuan, and 23.8 billion yuan, respectively, +3%, +7%, and +9% year-on-year. The 4/26 closing price corresponds to the company's 24-26E dynamic PB of 1.07, 1.02, and 0.96 times, and dynamic PE of 14.4, 13.4, and 12.2 times, respectively.
Risk warning: The downward pressure on the economy is increasing; the activity of stock transactions in the market has declined sharply; the process of residents' capital entering the market has slowed down.