Incident: Haitong Securities announced its 2024 quarterly report, and the results were in line with expectations. The company achieved revenue of 4.76 billion yuan/yoy -44% /qoq +1156%; net profit to mother of 9.1 million yuan/yoy -63% /qoq +127%; 1Q24 weighted ROE (unannualized) 0.56%/yoy-0.91pct.

The main reasons for the significant month-on-month improvement in 1Q24's net profit performance were: 1) 1Q24 asset impairment returned to normal, with an estimated impairment of 260 million yuan/qoq -87% in a single quarter, mainly due to reduced impairment losses on long-term receivables; 2) investment income turned loss into profit, achieving profit of 1.15 billion yuan/qoq +135% in a single quarter.

Focus: In 1Q24, Haitong's estimated credit impairment and asset write-off eroded net profit attributable to mother by about 20%. According to the company announcement, 1) Accrued asset impairment: Haitong Securities calculated credit impairment losses of 260 million in 1Q24 (including rebound of 18.92 million), which had an impact on net profit of more than 10% of the company's net profit in 2023. 2) Asset write-off: Haitong Securities 1Q24 wrote off a total of 130 million financial lease payments and long-term receivables that are expected to be irrecoverable. Together, the two eroded net profit by 160 million dollars.

Under a high base, the overall business line was under pressure year over year. Looking at the investment business line, the biggest improvement was the month-on-month comparison. 1Q24 Haitong Securities's main revenue was 3.61 billion yuan/yoy -34% /qoq +882%. 1) Main revenue split: brokerage, investment banking, asset management, net interest, net investment (including exchange), and long-term stock investment achieved the following revenue/yoy/qoq growth rates as follows: 850 million/yoy -7% /qoq -11%, 410 million/yoy -54% /qoq +1%, 400 million/yoy -15% /qoq -17%, 870 million/yoy -19% /qoq +7%, 1.150 million/yoy -38% /qoq +135%, long-term equity investment y -152% /qoq -190% . 2) Main revenue composition: net investment (including exchange) accounts for 32%, brokerage accounts for 24%, net interest accounts for 24%, investment banks account for 11%, asset management accounts for 11%, and long-term stock investment accounts for -3% (excluding other fees).

The return on proprietary income in 1Q24 improved significantly compared to '23, and the brokerage and finance business did not perform as well as the industry. In terms of self-operated business, the company reversed its losses sharply in 1Q24. At the end of the period, the company's financial investment assets were 258.6 billion yuan/-14% compared to the beginning of the year, mainly dragged down by transactional financial assets -8% compared to the beginning of the year and -40% from other debt investments; at the end of 1Q24, the company's investment leverage was 1.57 times /yoy-0.13 times/-0.26 times compared to the beginning of the year; it was estimated that 1Q24 had an annualized return on investment of 1.65%, which was a significant improvement over the full year of 2023 (return on investment of 0.05%). In terms of brokerage business, 1Q24 achieved brokerage revenue of 850 million/yoy -7%, and its performance fell short of the 1Q24 market share base turnover (average daily turnover of 1,031.4 billion dollars/yoy +4%) in the 1Q24 market. In terms of credit business, 1Q24 achieved net interest revenue of 870 million/ contributing 24% to main revenue, mainly due to a month-on-month decline in annualized debt costs (1Q24 3.72% vs. 4.08% in 2023), which led to a month-on-month decline in interest expenses (1Q24 interest expense qoq -10%); the company's financing balance of 65.4 billion yuan/yoy -6% at the end of the period was not as good as the industry (market balance yoy -1.5%).

Refinancing dragged down equity financing performance in 1Q24, and the bond market share remained stable. According to Wind statistics, in terms of equity underwriting, 1Q24's IPO underwriting scale was 1.53 billion/yoy -80% (industry yoy -77%), with a market share of 6.8%/ranking 4th in the industry; 1Q24 Haitong Securities had no refinancing underwriting projects; in terms of bond underwriting, 1Q24's corporate debt underwriting scale was 89.5 billion/yoy +4% (industry yoy +1%), ranking 8th in the industry. In 1Q24, Haitong Securities launched 47 sponsorship projects, second only to CITIC Securities and CITIC Construction Investment.

The decline in non-commodity AUM of Haifutong Fund was slightly better than that of the industry, and Wells Fargo Fund stabilized the top 5 in the industry. According to Wind, 1Q24 Mukai Fortis Fund (holding 51%) had a non-cargo base of 111.3 billion/yoy +28%/ranked 39th in the industry; Wells Fargo Fund (27.8%) had a non-cargo base of 571 billion dollars/yoy -5% (vs industry yoy -6%)/ranked 5th in the industry.

Investment analysis opinion: Maintain profit forecasts and maintain the company's holdings growth rating. The company's 2024-26E net profit is expected to be 41.5, 533, and 7.23 billion, or +311.5%, 28.5%, and 35.6% year-on-year, respectively. On the same day, the company released the “2024 “Improve Quality, Efficiency, and Heavy Return” Action Plan, which mentions “the company has implemented two consecutive share repurchase plans since August 2023, and the second repurchase plan is still in progress”, fully demonstrating the company's confidence in its own development and maintaining an increase in holdings rating.

Risk warning: The downward pressure on the economy increased; market share base transaction activity declined sharply; the company announced on April 12, 2024 that the relevant entity was suspected of breaking the law and regulations during the transfer of CNNC Titanium White's 2023 non-public shares in violation of restrictive regulations, and received a lawsuit from the Securities Regulatory Commission.