Incident: The company released its quarterly report for 2024, achieving operating income of 13.8 billion yuan, -10% year-on-year; net profit to mother of 5 billion yuan, -8% year-on-year; net assets to mother of 280.9 billion yuan, +4% compared to the beginning of the year.
Key points of investment
Revenue from heavy capital businesses declined overall, and exchange earnings increased sharply: 1) Profit from disposal of financial assets declined, leading to a decline in proprietary business revenue: 2024Q1, equity market turbulence, and the bond market performance was relatively steady. As of 2024/03, Wandequan A/China Bond Composite Index was -2.85%/+1.98%, respectively, and the company's self-operated business revenue was -17% to 5.5 billion yuan (accounting for 40% of total revenue). We expect the equity asset base of the company's self-operated holdings to be high. 2) Net interest income declined due to an increase in interest expenses payable on short-term financing notes and sales and repurchases: 2024Q1. The company's net interest income was -44% year-on-year to 300 million yuan (accounting for 2% of total revenue). 3) Exchange rate fluctuations, leading to an increase in exchange earnings:
2024Q1, the company's exchange revenue was +482% year-on-year to 900 million yuan (accounting for 6% of total revenue).
The overall asset-light business declined slightly, and the long-term leading position in the investment banking business remained stable: 1) Increased market activity led to a slight decline in brokerage business revenue. According to Wind, the average daily turnover of A shares in the first quarter of 2024 was +1.89% year-on-year to 895.4 billion yuan, and the company's brokerage revenue was -6% year-on-year to 2.4 billion yuan (accounting for 18% of revenue). 2) The expected decline in management rates will result in a slight decline in asset management business revenue. 2024Q1, the company's asset management business revenue was -6% year-on-year to 2.4 billion yuan (accounting for 17% of revenue). We expect it to be mainly affected by the decline in asset management rates. 3) The decline in the scale of IPOs and refinancing led to a decline in investment banking business revenue: According to Wind, IPO/fixed increase/debt commitments in the 2024Q1 market were -77%/-76%/-3% year-on-year to 224/362/619.9 billion yuan, respectively. The market share of the company's three businesses was 23%/26%/6%, respectively (all three ranked first in the market). Affected by the “phased tightening of the pace of IPOs”, the scale of the company's securities IPOs and refinancing declined. The company's investment banking business revenue was -56% to 900 million yuan (accounting for 6% of revenue), and the long-term leading position remained stable.
The high-quality development of the industry has shown leading advantages. On 2024/4/25, the State Council issued a report on the research and processing of opinions and rectification and accountability in the special report on the management of state-owned assets of financial enterprises. The report states that it is necessary to promote the quality and efficiency of state-owned financial enterprises and concentrate efforts on building a “national team” for the financial industry. Research and draft action plans to strengthen the management of state-owned financial capital, push large state-owned financial enterprises to target world-class financial enterprises, highlight their main business, improve their expertise, continuously enhance their competitiveness and international influence, and push leading securities companies to become stronger and better. We believe that the “Report”, from the Securities Regulatory Commission's previous statement of “becoming better and stronger” to the State Council's initial proposal to “become stronger and better,” reflects the earnest expectations of senior management for leading securities companies to target world-class financial companies. CITIC Securities is expected to enjoy various policy dividends, and its leading advantage is further highlighted.
Profit forecast and investment rating: From a medium-term perspective, the current market environment is still recovering. Market trading sentiment and investment banking business are affected by cyclical adjustment factors, but the long-term positive direction of the market remains unchanged. Capital market reforms continue to be optimized, macroeconomics are gradually recovering, and leading brokerage firms are more able to control risk. We believe that CITIC Securities can enjoy policy dividends to a greater extent; therefore, we maintain our profit forecast for CITIC Securities. We expect the company's net profit to be 208/240/29.3 billion yuan respectively in 2024-2026 At 1.05/1.01/0.96 times, we are still optimistic about the company's comprehensive advantages as a leading brokerage firm, and look forward to the company's long-term business development and maintaining a “buy” rating.
Risk warning: Competition in the industry market intensifies risks, and the recovery of the securities market falls short of expectations.