Incident: Zheshang Securities announced its 2024 quarterly report, which was better than expected (forecasted profit of -18% YoY).
1Q24 achieved net profit of 450 million/yoy -8% and revenue of 3.88 billion yuan/yoy -21%. The weighted average ROE (non-annualized) was 1.64% /yoy-0.21pct.
The overall performance was superior to that of peers, and the asset management business performed well. Revenue split: 1Q24 brokerage, investment banking, asset management, net interest, and net investment income were 5.3, 1.5, 1.5, and 4.6 billion yuan respectively, accounting for 37.6%, 10.7%, 10.7%, 32.7% of revenue, +24%, -35%, +60%, -7%, and -23%, respectively.
The scale of investment remained stable, and the yield declined somewhat under a high base. Investment leverage (investment assets/net assets) at the end of the period is 1.83x/yoy-0.01x/qoq-0.07x, of which the financial investment scale was 50.4 billion yuan/yoy +3% /qoq -2%, and the investment leverage remained stable year-on-month; the return on investment declined under a high base. It is expected that stock ownership will be under pressure mainly due to equity market fluctuations. It is estimated that 1Q24 has an annualized return on investment of 3.64% /yoy-1.4pcqt/qoq+2.5pct.
The brokerage business went public with it. The company's brokerage revenue is 540 million/yoy -5% (due to adjustments in the company's brokerage revenue between quarters, so the calculation here is net income from handling fees and commissions minus investment banking and asset management business revenue), which is expected to be similar to the overall performance of the industry (1Q24 market share base ADT +3.9% YoY, considering the decline in commission rates, negative growth in industry brokerage business revenue is expected).
An agreement was signed to acquire part of Guodu Securities's shares. Qingzhou has already passed 10,000 mountains. We are concerned about the progress of the remaining share acquisitions and the regulatory approval process. On 3/29, the company announced that it plans to transfer 19.15% of Guodu Securities's shares. Follow-up main concerns: 1) Guodu Securities still has 15.1% of its shares in the public listing. If Zheshang Securities completes the acquisition at the same time, it will hold a total of 34.25% of the shares; 2) Due to changes in the brokerage firm's major shareholders, it is still necessary to complete materials receipt, acceptance, feedback (or any), and approval processes after the agreed acquisition.
Investment Analyst Opinion: Maintaining the “Highly Recommended” rating. Profit forecasts are not adjusted yet. The net profit of 2024-2026E Zheshang Securities is estimated to be 1.82 billion yuan, 1.95 billion yuan, and 2.13 billion yuan, respectively, +4%, +7%, and +10% compared with the same period last year. The 4/29 closing price corresponding to the company's 24-26E dynamic PB was 1.61, 1.53, and 1.56 times, and dynamic PE was 24, 23, and 21 times, respectively.
Risk warning: The downward pressure on the economy is increasing; the activity of stock transactions in the market has declined sharply; the process of residents' capital entering the market has slowed down.