Incident: CITIC Construction Investment revealed its 2024 quarterly report, slightly lower than expected. 1) Performance Overview: 1Q24's revenue is 4.3 billion/yoy -36%, mother profit 1.23 billion yuan/yoy -49%, weighted ROE 1.31% /yoy-1.83 pct. 2) Management rate increase: 1Q24 company management rate 67.1% /yoy+18.9pct.
Revenue split: Brokering+net investment accounts for more than 70%, and investment and investment banking businesses are the biggest drag on performance. 1) Looking at the revenue growth rate, 1Q24 has a net investment of 1.56 billion yuan/yoy -38%, brokerage 1.25 billion yo/yoy -7%, investment bank 450 million/yoy -59%, net interest of 160 million/yoy -65%, and asset management of 280 million/yoy +76%. 2) Looking at the revenue structure (accounting for the main revenue of securities), net investment accounts for 41%, brokerage accounts for 33%, investment banks account for 12%, net interest accounts for 4%, and asset management accounts for 7%. 3) The investment and investment banking business was the biggest drag on performance: 1Q24 net investment, investment banking, net interest, and brokerage respectively dragged down the main revenue growth rate of 16.4pct, 11.2pct, 5.1pct, and 1.7pct of securities. (Note: Securities main revenue = operating income - other income - other business income - asset disposal income)
Investment business: The ranking of equity underwriting scale has declined, and investment bank revenue will continue to be under pressure in '24. According to Wind, CITIC Construction Investment's 1Q24 IPO was 792 million/yoy -95%, with a market share of 3.54% /yoy-12.1pct, ranking 9th in the industry (ranked 2nd in the industry in the same period last year); the bond underwriting scale was 259.5 billion/yoy -9.2%, and the market share was 9.38% /yoy-1.3pct. In March of this year, the Securities Regulatory Commission issued four policy documents including “Opinions on Strictly Controlling Issuance and Listing Entry and Improving the Quality of Listed Companies (Trial)”. We believe that in 24, in the context of countercyclical regulation of the pace of IPO issuance, the scale of market IPOs will continue to decline, the company's investment banking revenue will continue to be under pressure, and attention should be paid to the quality of investment banking practices.
Brokerage business: Revenue declined faster than the industry, and is expected to be mainly due to the decline in institutional division commissions and consignment sales revenue. In 1Q24, the company's brokerage business revenue fell 7% year on year (industry stock turnover +1%), and the main reason is that institutional dividend commissions and consignment sales revenue are expected to decline significantly (the company's institutional commission+consignment sales revenue accounted for 42% of securities brokerage net revenue in 2023). By the end of '23, the company had 317 brokerage branches, 57% of which were concentrated in five provinces and two cities (Beijing, Shanghai, Guangdong, Fujian, Zhejiang, Jiangsu and Shandong), including 55 branches in Beijing. It was the securities company with the largest number of business outlets in Beijing, laying the foundation for wealth management business development.
Investment business: The return on investment is declining, mainly due to the decline in earnings from the derivatives business. At the end of the first quarter of '24, the company's investment assets were 303.5 billion/yoy +12% /qoq +3%, and the investment leverage was 2.94 times/yoy+0.11 times/qoq-0.08 times. Specifically, the size of the company's transactional financial assets+derivative financial assets at the end of the reporting period was 231.1 billion dollars/yoy +17% /qoq +6%.
The estimated return on investment of the company in 2023 was 2.48% /yoy+0.52 pct. Since November 23, the new scale of the brokers' long and short income swap DMA business has been controlled, and we expect that the company's derivatives business earnings may be under pressure.
Investment analysis: Maintain an increase in holdings rating. Maintaining the profit forecast, the net profit for 2024-2026E is estimated to be 62,7 billion yuan, 7.7 billion yuan, and 7.7 billion yuan, respectively, -12%, +13%, and +9% year-on-year, respectively. Recently, the Securities Regulatory Commission proposed “speeding up the construction of a strong financial country” and “cultivating first-class investment banks and investment institutions”. The company is expected to continue to benefit as a comprehensive large brokerage firm ranked in the top 10 in the industry in various indicators such as asset size and performance, and maintain the company's holdings increase rating.
Risk warning: The downward pressure on the economy is increasing; market equity transaction activity has declined; Evergrande Real Estate's suspected bond information disclosure violation has been investigated by the Securities Regulatory Commission. CITIC Construction Investment is the lead underwriter of the bond. If the intermediary agency fails to “be diligent and conscientious,” it may be punished by the Securities Regulatory Commission and bear joint and several civil liabilities.