Event: Huatai Securities released its 2024Q1 quarterly report. 2024Q1 achieved revenue/net profit of 61.05/2.291 billion yuan, -32.11%/-29.39% year-on-year, weighted average ROE of 1.37%, a year-on-year decrease of 0.49 percentage points.
Comment:
The decline in self-employment was obvious or was mainly due to market fluctuations, and the decline in investment performance was mainly due to the stricter regulatory environment.
The cumulative revenue from the company's brokering/investment banking/asset management/credit/proprietary business in 2024Q1 was 13.58/5.76/11.06/2.3/1,881 billion yuan, respectively, -11.4%/-26.1%/+10.2%/-23.3%/-58.9%. The company's own operation declined significantly, with investment income of 939 million yuan, -85.1% year-on-year, which is expected to be mainly due to fluctuations in the equity market.
The leverage ratio declined slightly, and the total asset level declined due to the contraction in the scale of self-employment. It is expected to be mainly due to the decline in the size of assets such as equity and financial management. In 2024Q1, the company's leverage ratio excluding customer funds was 3.96, down 0.26 times from the beginning of the year. The total asset size was 862,623 billion yuan, down 4.7% from the beginning of the year, including financial investment assets of 438.860 billion yuan, -8.6% year on year, and transactional financial assets of 371.397 billion yuan, -10.2% year over year. The company sold and repurchased financial assets of 156.531 billion yuan, +8.7% year-on-year. We expect the main reason for this is the decline in the company's equity and financial management scale in 2024Q1, and the increase in bond leverage.
Selling AssetMark may help optimize the capital structure to focus on core business. On April 25, Huatai Securities announced the sale of all of its shares in AssetMark, taking into account the current competitive pattern of the turnkey asset management platform industry and the need to sell all of its shares in AssetMark for further development of the company's international business. After the transaction is completed, Huatai Securities is expected to receive approximately $17.93 billion in cash. We believe that the sale of overseas TAMP assets will help the company optimize its capital structure, focus on other core businesses, and enhance asset returns. In 2023, the company's capital leverage ratio was 13.98%, and the net stable capital ratio was 130.84%, which is at a low level in the industry.
The market share of investment banks in IPOs has risen, temporarily ranking first in the industry. 2024Q1, affected by strong IPO supervision, the company's IPO size was 3.452 billion yuan, -38.0% year over year, market share 14.6%, up 6.1 pct year on year, temporarily ranking first in the industry. Bonds underwrote $168.611 billion, -1.7% year over year, ranking fifth in the industry. Judging from the IPO reserve situation, as of April 30, Huatai Securities had 133 reserve projects, ranking sixth in the industry.
The management scale of its fund companies has increased markedly, contributing to asset management revenue. 2024Q1, the management scale of the company's Huatai Bury/China Southern Fund non-commodity funds was 3506.39/538.076 billion yuan respectively, +23.1%/+10.0% over the same period last year.
Investment advice: The company's internal governance is leading, and its ROE is rising steadily, and the competitive advantage is expected to further improve in the future. Currently, the company's total assets and net asset levels are at the top of the industry. In line with recent regulatory statements supporting large state-owned financial institutions to become better and stronger, subsequent companies are expected to receive incremental policy support, the quality of business profits is expected to improve, and the current valuation level is low, so it is recommended to pay attention.
Risk factors: Increased market competition, policy implementation falling short of expectations, increased market volatility, etc.