24Q1 Guolian Securities achieved operating income of 170 million yuan, -74% year over month; net profit loss of 220 million yuan to mother, turning loss year on year; ROE (unannualized) was -1.23%, down 2.45 pct year on year; operating leverage was 4.6 times, continuing the upward trend.
Overall overview: Proprietary business dragged down, net profit turned loss. The 24Q1 company achieved operating income of 170 million yuan, -74% year-on-year, and -61% month-on-month; net profit loss to mother was 220 million, which turned into a year-on-year loss. At the end of the first quarter, total assets were $93.2 billion, +7% compared to the end of the previous year, and net assets attributable to mother were $17.9 billion, +1% compared to the end of the previous year. ROE (unannualized) was -1.23%, down 2.45 pcts year on year; operating leverage was 4.6 times, continuing the upward trend. Self-employment was the main drag on performance. Asset management/ brokering/ investment banking/ credit/ proprietary business accounted for 88%/67%/48%/-17%/-93% of the main business, respectively.
Fee business: Brokerage performance is weaker than the market, investment banks are still under pressure, and asset management is steady. (1) Brokers' performance is weaker than the market. 24Q1 brokerage net revenue was 110 million, -3% YoY and -13% YoY. The average daily share base turnover of the entire market was 1021.7 billion, +3.0% year over year and +8.3% month over month. The company's share base market share is expected to decline.
In addition, demand in the base market is weak, the pace of new fund issuance is slow, and equity fluctuations affect fund holdings, and are also a drag on the consignment business. (2) Investment banks are still under pressure. 24Q1 investment banking business revenue was 80 million, -13% year over year and +23% month over month. The 24Q1 bond underwriting amount was $12.96 billion, +6% year over month, -7% month over month. The market share increased 0.02 pct year over year to 0.47%, and the industry ranking rose from 34 to 30. (3) Steady asset management, and fund consolidation boosts year-on-year performance. 24Q1 asset management revenue was 140 million, +350% year over year and -5% month over month. The year-on-year increase was mainly due to the consolidation of the League of Nations funds; the slight year-on-year decline was due to equity fluctuations at the beginning of the year, which affected the net worth of non-commodity funds. At the end of the first quarter, the net asset value of the League of Nations funds was 118.7 billion yuan, +8% year over month, +4% month on month; non-commodity funds were +27% year over year, -1% month on month. Furthermore, falling rates are also affecting asset management revenue.
Capital business: Derivatives fluctuate, self-employment turned into losses, reduced credit scale, and revenue declined. (1) Derivatives are affected by fluctuations, and self-employment is converted into losses, but incidental risks do not hinder the normal operation of the company. In 24Q1, self-employment lost 150 million dollars.
It is expected that due to the strong impact of equity derivatives fluctuations at the beginning of the year, such risks will be incidental. Along with market recovery, valuation losses of related financial products will be reversed, and overall, the company's subsequent business development will not be affected. At the end of the first quarter, transactional financial assets were 45.4 billion, +16% compared to the end of the previous year. Among them, other equity instruments were 4.1 billion, +15% compared to the end of the previous year. The company is expected to allocate high-dividend assets; derivative financial assets were 2.5 billion yuan, +43% compared to the end of the previous year.
(2) Credit scale was reduced and revenue declined, expenditure continued to increase, and net interest income turned into loss. 24Q1 net interest income turned into a loss, with a loss of $0.3 billion. The scale of the business contracted, dragging down interest income. 24Q1 interest income was 310 million, -14% year over year. The amount of capital raised was 9.7 billion yuan, -4% compared to the end of the previous year; the purchase and resale of financial assets was 5.15 billion yuan, compared to -3% at the end of the previous year. Interest expenses on bonds generated by self-employment and leverage crowded out gross profit space. 24Q1 interest expenses were 340 million, +9% year over year and +8% month over month.
The integration of the League of Nations and Minsheng has entered a substantial stage, or it may become the first successful case of market-based mergers and acquisitions of brokerage firms since the Central Financial Work Conference. After the integration is completed, Guolian Securities will rely on the resources of the shareholders of the League of Nations Group and is based on its own strong businesses such as financial management and fixed income. With the support of Minsheng Securities's investment banking business advantages, it is expected to join the first tier of the industry and become a quasi-leading brokerage firm.
Investment advice: Maintain a “Highly Recommended” rating. The company's management continues to forge ahead, and the merger and acquisition of Minsheng Securities has entered a substantial stage, realizing that the merger and acquisition style has surpassed development and growth. Despite short-term fluctuations in the derivatives business hampering performance, the professional management team and business team are still trustworthy. We expect the company's net profit for 24/25/26 to be 780 million/93 million/1.11 billion, respectively, +16%/+19%/+20% year-on-year.
Maintain the company's target price of $14.22 and maintain 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.