Incidents:

CICC released its 2024 quarterly report. In Q24, the company achieved cumulative total revenue of 3.87 billion yuan, -38% year over year; net profit to mother of 1.24 billion yuan, -45% year over year; and ROE was 1.21%, a decrease of 1.29 pct compared to the same period last year.

Fee-related business: All businesses are under pressure due to market fluctuations

1) 1Q24's net brokerage fee revenue was 830 million yuan, -33% YoY /-18.2% month-on-month, accounting for 21.7% of main securities revenue (excluding bulk commerce and government subsidies), +3.2pct year over year.

2) 1Q24's asset management business achieved net handling fee revenue of 270 million yuan, -18% YoY/+2% month-on-month. As of the end of 1Q24, the company controlled CICC Fund had a non-cargo AUM of 67.5 billion yuan, +21% year-on-year, and the net profit of CICC Fund in 2023 was 40 million yuan, +87.3% year-on-year.

3) The investment bank of 1Q24 achieved net handling fee revenue of 450 million yuan, -25% YoY /-58% month-on-month, accounting for 11.8% of main securities revenue (excluding bulk commerce and government subsidies), or -7.9pct year on year.

(1) According to the statistics of the release date, the 1Q24 IPO lead underwriting amount was 1.2 billion, with a market share ratio of -72%, ranking fifth in the market; (2) A-share refinancing issuance scale was 8.3 billion yuan, -62% YoY, with a market share of 18%, second in the industry. (3) Domestic debt was 221.4 billion, -7% year-on-year, with a market share of 8%.

Capital business: Investment income pressure drags down net profit

1) We estimate that 1Q24's operating leverage was 4.98 times, down 0.66 times year on year; investment leverage was 3.12 times, down 0.47 times year on year.

2) The net investment income of the 1Q24 company (including exchange income) was 2.34 billion yuan, -35% YoY/-19% YoY. The net investment income of the 1Q24 company accounted for 61.1% of the main securities revenue (excluding bulk trade and government subsidies), +8.5pct compared to the previous year. As of the end of 1Q24, the company's financial asset investment scale was 33.8 billion yuan, compared with -9% at the end of 2023, of which transactional financial assets were 266.5 billion yuan, compared to -10% at the end of 2023. It is estimated that the company's 1Q24 company's annualized return on investment was 2.7%, or -1.3 pct year on year.

Profit Forecasts, Valuations, and Ratings

Considering the impact of short-term equity market shocks on the company's investment income, we lowered the company's profit forecast. We expect the company's revenue for 2024-2026 to be 219/224/232 billion, respectively, -4.6%/+2.1%/+3.8%; 2024-2026 net profit to mother will be $59/61.64 billion, respectively, -4%/+3%/+5.9% year-on-year; EPS will be 1.22/1.26/1.34 yuan/share, respectively. We believe that the company's international business is leading, and the wealth management business is expected to recover as the equity market recovers, and in line with the company's historical situation, the company will be given 2 times PB in 2024, with a target price of 45.05 yuan at this point, maintaining a “buy” rating.

Risk warning: Market recovery falls short of expectations, increased competition in the industry, risk of policy changes