Key points of investment
Incident: Guolian Securities released its 2024 quarterly report. The company achieved total operating income of 173 million yuan in 2024Q1, a year-on-year decrease of 74.44%, and a net loss to mother of 219 million yuan, changing from profit to loss compared to 23Q1.
The performance of the asset-heavy business needs to be improved, and the proprietary business has caused a major drag: 1) Proprietary business revenue is constrained by large market fluctuations. In the first quarter of 2024, the company's own business revenue (investment income - investment income from joint ventures plus net income from changes in fair value) - 150 million yuan, a sharp drop from 23Q1 (373 million yuan), which is the main reason for the decline in the company's first-quarter performance. We expect that the company's equity self-operated and equity derivatives business will be greatly negatively affected by large market fluctuations in the first quarter. 2) Net interest income changed from positive to negative. 2024Q1's net interest income was -149% year-on-year to -027 million yuan, mainly due to the combination of the increase in the company's financing scale and the decline in the scale of investment in disposal of other debts. Furthermore, we expect the scale of the company's two finance business to shrink, resulting in interest income falling short of 23Q1 (by the end of 24Q1, the company's financing capital was -4% compared to the end of 23Q1 to 9.7 billion yuan).
The asset-light business situation is neutral, and shows that the League of Nations Funds is driving a high increase in asset management revenue: 1) Trading activity rebounded, and the decline in brokerage revenue is expected to result in a decline in commission rates: the average daily share base turnover of the entire 2024Q1 market was 1,029.2 billion yuan, +4%/+8% month-on-month respectively. The net revenue from the company's brokerage business was -3% year-on-year to 108 million yuan. We expect the commission rate to decline year-on-year. 2) Investment banking business is heavily restricted by policies. Affected by the phased tightening of IPOs and refinancing, 2024Q1 did not have an IPO or refinancing offering, and the net revenue from the company's investment banking business was -13% to $78 million year-on-year.
3) The asset management business is also represented by the League of Nations Fund, with a significant year-on-year increase in revenue. 2024Q1, the net revenue from the company's asset management business was +350% year-on-year to 143 million yuan, mainly combined with the League of Nations Fund.
Planning to acquire control of Minsheng, and the integration process officially began: On April 25, 2024, Guolian Securities announced that the company is planning to acquire Minsheng Securities by issuing A-shares and will be suspended for no more than 10 trading days from the opening of the market on April 26. At the same time, the company decided to terminate the previously ordered additions and withdraw the application. This announcement marks that the collaborative integration between the League of Nations and Minsheng has once again reached a new level. It is fully in line with the statements of leading institutions supporting supervision to improve and become stronger through mergers, acquisitions and restructuring. It is expected that while greatly increasing its size, Guolian Securities will complement its advantages with Minsheng Securities.
Profit forecast and investment rating: Considering the company's year-on-year change from profit to loss in the first quarter, we lowered our previous profit forecast. The company's net profit for 2024-2026 is 4.03/8.40/ 987 million yuan respectively (previous values were 765/9.12/1,074 billion yuan, respectively), corresponding growth rates were -40.01% /108.45%/17.52%, respectively, and the corresponding EPS was 0.11/0.24/0.28 yuan, respectively. The current market value corresponds to 2024-2026 PB valuations, respectively 1.65/ 1.45/ 1.41 times We are still optimistic that the company's subsequent endogenous growth will go hand in hand with epitaxial expansion, and maintain a “buy” rating.
Risk warning: 1) The equity market fluctuates greatly; 2) industry regulatory policies are tightening; 3) The effects of mergers and acquisitions integration fall short of expectations.