Key points of investment
Incident: CICC released its 2024 quarterly report. In 24Q1, the company achieved total operating revenue of 3,874 billion yuan, or -37.61% year-on-year, and realized net profit to mother of 1,239 billion yuan, or -45.13% year-on-year.
Asset-heavy business: Proprietary income declined, and interest losses widened. 1) Proprietary business is constrained by market fluctuations: 24Q1 the company's self-operated business revenue (investment income - return on investment in joint ventures plus net income from changes in fair value) was RMB 1,853 million, -48.8% over the same period last year. The decline in revenue from proprietary business was the main reason for the decline in the company's performance in the first quarter. We expect the company's equity and equity derivatives business to be greatly affected by large market fluctuations in the first quarter, and the scale of financial investment declined significantly (255.890 billion yuan in transactional financial assets, -13.25% year over year). 2) Net interest expenses increased year-on-year. The 24Q1 net interest income and expenditure of the company was 594 million yuan, +144.80% year-on-year, mainly due to a decrease in interest income from the stored financial sector and interest income from securities financing. The contraction of 24Q1's dual-finance business (24Q1 financing capital decreased by 3.61% compared to 23Q1 to 34.3 billion yuan), which had a negative impact on the interest income of the two loans.
Asset-light business: Brokerage, investment banking, and asset management businesses are all under relative pressure. 1) Brokerage revenue declined significantly. The average daily share base turnover of the 2024Q1 market was 1,029.2 billion yuan, +4%/+8% year-on-month, respectively. The net revenue from the company's brokerage business was -32.77% to $831 million, which is less than the overall performance of the market. We expect that the impact of the public offering fee reform on the wealth management line will be initially evident, and the consignment financial products business accounts for a relatively high share of the company's brokerage business. 2) Investment banking business is heavily restricted by policies.
Affected by the phased tightening of IPOs and refinancing, the IPO/refinancing issuance scale of 2024Q1 companies was -72%/-84% year-on-year to $12.45 billion, respectively, resulting in net revenue from the company's investment banking business -25% to $450 million year-on-year. 3) Asset management business improved slightly from month to month. The net revenue from the 24Q1 asset management business was -17.93% year-on-year to 268 million yuan, or +1.94% month-on-month. We expect the year-on-year decline in the company's asset management business revenue to be affected by a combination of the reduction in the scale of the asset management business (-16% of the company's asset management scale at the end of 2023 compared to the end of 23Q1; the trend is expected to continue in 24Q1) and the decline in management rates. The month-on-month improvement reflects a slight increase in trading activity to a certain extent.
Profit forecast and investment rating: We maintain our previous profit forecast. We expect the company's net profit to be 62.40/71.29/8.261 billion yuan respectively in 2024-2026, with corresponding growth rates of 1.36%/14.24%/15.89%, and corresponding EPS of 1.29/1.48/1.71 yuan respectively. The current market value corresponds to the 2024-2026 PB (H) valuation 0.43 /0.40/0.36 times, respectively. I am optimistic about the company's long-term competitive barriers in investment banking and wealth management business. After market trading activity and market conditions fully recover, the company is expected to further develop its leading advantage and maintain a “buy” rating.
Risk warning: 1) The equity market fluctuates greatly; 2) the tightening of IPOs and refinancing exceeds expectations.