Core conclusion: The location advantage provides high-quality resources, the business is deeply cultivated in Zhejiang, distributed throughout the country, and the shareholder background helps to integrate resources. As a listed securities company directly under the province headquartered in Hangzhou, since its establishment, Caitong Securities has fully grasped the characteristics of Zhejiang Province's active economy and high customer quality, implemented the strategy of deep-cultivating Zhejiang, leveraged its geographical advantages based on resources within Zhejiang Province, and gradually developed from a regional brokerage firm to a comprehensive national brokerage firm. We estimate that the net profit of Caitong Securities in 2024-2026 will be RMB 2,326 billion, RMB 2,564 billion, and RMB 2,938 billion, respectively. The company's location advantage in Zhejiang is remarkable, and the customer scale continues to grow. We gave the company a valuation of 1.03 times PB in 2024, corresponding to a target share price of 7.83 yuan/share, which gave the first coverage a “gain” rating.
Brokerage business: The wealth business is deepening transformation, and the customer base is growing rapidly. As the only provincial securities company in Zhejiang, the company continuously integrates resources from various sources. By the end of 2023, Caitong Securities had set up 29 branches and 134 securities sales departments, mainly distributed in all districts and counties (104) of Zhejiang Province. The number of wealth management clients has achieved double-digit growth in the past four years. As of December 31, 2023, the number of corporate brokerage clients exceeded 3.26 million, an increase of 14% over the end of the previous year. In 2023, the brokerage business achieved net revenue of 1,199 billion yuan, +1.3% year-on-year, accounting for 20.6% of revenue, which is an important part of the company's revenue.
Investment business: The “Investment Banking+Investment+Wealth” troika promotes group collaboration, and the market share is expected to increase. The company's net revenue from investment banking business in 2023 was 761 million yuan, +68.4% year-on-year. In terms of classification, the share underwriting scale of Caitong Securities is relatively small. As of the end of 2023, the company's equity underwriting amount was 8.508 billion yuan, compared with 113% of the same period. Of these, the IPO raised 4.1 billion yuan, and the refinancing underwriting scale was 4.4 billion yuan. The scale of bond underwriting maintained a steady upward trend, growing from 19.37 billion yuan in 2018 to 125.1 billion yuan in 2023. The CAGR was 45.23%, and the market share continued to increase from 0.34% in 2018 to 0.94% in 2023.
Asset management business: Revenue from asset management business has been rising steadily, and the scale is on the rise. The company carried out brokerage asset management business by holding Caitong Asset Management and participating in the Caitong Fund. Business revenue has continued to grow since 2019. In 2023, the company achieved net income from asset management business of 1,553 billion yuan, an increase of 6.37% over the previous year. The overall asset management scale increased from 142.4 billion yuan in 2018 to 276.5 billion yuan (company internal caliber) in 2023, with a CAGR of 14.20%.
Risk warning: risk of market fluctuations, business risk, risk of declining market activity.