In 24Q1, CITIC Construction Investment achieved operating income of 4.29 billion yuan, -36% year-on-month, and -12% month-on-month; net profit to mother was 1.23 billion yuan, -50% year-on-year and -9% month-on-month. The annualized ROE was 5.24%, compared to 23 years - 3.4 pct. Operating leverage was 4.22 times, down slightly from previous years.

Overall overview: Performance is under pressure in the short term, and the label business is being buffered by distribution trends. 24Q1 achieved operating income of 4.29 billion yuan, -36% year-on-year and -12% month-on-month; net profit to mother of 1.23 billion yuan, -50% year-on-year and -9% month-on-month. At the end of the first quarter, the company's total assets were 532.2 billion yuan, +2% compared to the end of the previous year; net assets to the mother were 103.1 billion yuan, +6% compared to the end of the previous year. The annualized ROE was 5.24%, compared to 23 years - 3.4 pct. Operating leverage was 4.22 times, down slightly from previous years. Proprietary business/brokering/investment banking/asset management/credit/other businesses accounted for 40%/33%/12%/7%/4%/3% of the main business, respectively, -3/+10/-7/+5/-4/-1 pct.

Fee-related business: Brokerage and investment banks continue to be pressured, and the transformation of active asset management management continues. (1) Market share and rate decline, dragging down brokerage revenue. 24Q1 brokerage revenue was 1.25 billion yuan, -7% YoY, +1% month-on-month; the average daily stock base turnover of the entire market was 1021.7 billion yuan, +3% YoY and +8%. The decline in the company's share base market share and the slump in the base market are expected to drag down the consignment business. (2) Investment banking regulations are becoming stricter, the pace of bond issuance is slow, and investment bank revenue continues to decline. Investment banking revenue was 450 million yuan, -59% YoY, -50% month-on-month; 24Q1 IPO amount was 792 million, -95% YoY, market share 3.54%; refinancing amount was $918 million, -97% YoY, market share 1.49%; bond underwriting amount was 26.4 billion yuan, -10% YoY, -30% month-on-month, with a market share of 9.43%, maintaining 2nd place in the industry ranking. (3) Active management transformation continues, and the base effect affects month-on-month performance. 24Q1 asset management revenue was $280 million, +76% year over year and -24% month over month. At the end of the first quarter, the net asset value of CITIC Construction Investment Fund totaled 78.4 billion yuan, +34% year over month. Among them, the net value of fixed income products contributed the most. The net value of debt-based products contributed the most. The net value of debt-based products was +52% year over month and +32% month over month. It can be seen that the company actively managed the transformation and upgrading, adding bond products to “absorb money”. Coupled with the low asset management base of 23Q1, the year on year, achieved a high year-on-year increase.

However, the month-on-month decline may be due to the impact of the 24Q1 year-on-year high base.

Capital business: The return on investment is impressive, and credit income is declining. (1) A high base affects year-on-year performance, and self-employment returns are expected to lead the industry. 24Q1 Proprietary Revenue of 1.51 billion, -40% YoY and -15% YoY.

The high base affected year-on-year performance; the month-on-month decline was mainly due to the equity market fluctuating beyond expectations at the beginning of the year. At the end of the first quarter, transactional financial assets were 225.6 billion, +5% compared to the end of the previous year. Among them, investment in other equity instruments increased sharply to 230 million ($70 million at the end of 2023), which is expected to increase dividends for self-employment. At the same time, the company continued to invest in non-directional investments, generating 5.5 billion dollars in derivative financial assets, +32% compared to the end of the previous year. According to estimates, the 24Q1 company's return on its own investment is expected to be 2.74%. (2) The scale of finance has shrunk, and the scale of credit has declined. 24Q1 net interest income was 160 million yuan, -65% year over year and -21% month over month. The market was sluggish at the beginning of the year, and the trend declined significantly. The two finance businesses contracted, dragging down interest income. The amount of capital raised was $53.96 billion, -4% compared to the end of the previous year; the purchase and resale of financial products was RMB 11.05 billion, compared to -21% at the end of the previous year.

Investment advice: Maintain a “Highly Recommended” rating. The company continues to improve its various businesses, has rich management experience, and its ROE has long been superior to traditional large brokerage firms. The company's investment banks were under pressure in the short term, but it did not hinder the bright undertones of the business. The wealth management transformation has achieved remarkable results. The self-operated business is mainly fixed income investments, and the derivatives business is progressing steadily. Looking ahead to the future market, the policy attitude to support the development of the capital market is firm, and market sentiment has clearly recovered, which is beneficial to the brokerage sector. We expect the company's net profit for 24/25/26 to be 7.3/8.1 billion/ 8.6 billion, +3.6%/+11.5%/+6.3% year-on-year. The company's target price is 28.19 yuan, which is 30 times PE in 2024, with a space of about 23%, maintaining a highly recommended rating.

Risk warning: Policies are not as strong as expected, market fluctuations have intensified, and the company's market share has not increased as much as expected.