Key points of investment
Performance Overview
24Q1 Guolian Securities achieved operating income of 170 million yuan, a year-on-year decrease of 74.4%; net profit to mother of 220 million yuan, a year-on-year decrease of 205.5%. The performance was lower than expected, mainly due to large losses in the stock derivatives business, and the performance of other business lines was in line with expectations; 24Q1 corporate brokerage, investment banking, asset management, interest, and investment net income growth rates were -3%/-13%/350%/-149%/-140%, respectively.
Investment bank performance is stable, and asset management benefits are combined
In 24Q1, Guolian Securities achieved net investment banking revenue of 80 million yuan, a year-on-year decrease of 13%. The equity and debt underwriting scales of Guolian Securities in 24Q1 were 500 million yuan and 15.1 billion yuan respectively. The share underwriting scale decreased by 52% year on year, but the decline was better than the industry level, and the market share increased, so the net revenue from the company's investment banking business declined less.
In 24Q1, Guolian Securities achieved net revenue of 140 million yuan from asset management business, an increase of 350% over the previous year, mainly due to the combined revenue of the League of Nations Fund. As of April 29, 2024, the management scale of the League of Nations funds was 118.7 billion yuan, a slight increase of 4% from the beginning of the year.
The investment business experienced a large one-time loss
In 24Q1, Guolian Securities achieved net investment income of 150 million yuan, a year-on-year decrease of 140%, which is expected mainly due to losses in the stock derivatives business. The 24Q1 bond market performed well, and the company's fixed income investment is expected to achieve a good revenue growth rate and return on investment. The 24Q1 stock market experienced an extreme decline, the derivatives market base widened, and volatility increased dramatically. It was determined that the company's stock derivatives business suffered large losses due to extreme market conditions, but there was no sharp rise or fall in the market since the second quarter. It is expected that subsequent derivatives investment income will return to normal levels.
Extend mergers and acquisitions on a large scale to achieve complementarity
On April 25, Guolian Securities issued an announcement stating that it plans to acquire a total of 10.87 billion shares of Minsheng Securities held by counterparties such as Wuxi Guolian Development (Group) Co., Ltd. by issuing shares to purchase assets, accounting for 95.48% of its total share capital. 23Q1-3 Guolian Securities ranked 32/28/27/33 among listed brokerage firms in terms of total revenue, net profit to mother, total assets, and net assets respectively. If Guolian Securities and Minsheng Securities merge, the total revenue, net profit, total assets, and net assets of Guolian Securities can be raised to 18/17/20/18, and the company and Minsheng Securities complement each other in terms of geography, business, and mechanism, and are expected to achieve an effect of 1+1>2.
Profit forecasting and valuation
The net profit of Guolian Securities declined sharply in 24Q1 due to a one-time large loss in the stock derivatives business, and is expected to return to normal levels in the following quarters. The company continues to promote epitaxial mergers and acquisitions, and is expected to achieve regional, business, and institutional complementarity. Considering the loss in Q1, we lowered our profit forecast for the full year. We expect the net profit growth rate to be -25%/58%/11% for 2024-2026, corresponding to BPS of 6.48/6.78/7.13 yuan. Maintain the target price of 13.70 yuan and maintain the “buy” rating.
Risk warning
The macroeconomy declined sharply; trading activity declined sharply; the progress of market reforms fell short of expectations.