Business situation: Financial control entity in the securities+industry. “Hagoke”, the predecessor of Xiangcai Co., Ltd., was founded in 1994 and listed on the main board of the Shanghai Stock Exchange in 1997. In 2020, the company issued shares to purchase Xiangcai Securities and changed its name to “Xiangcai Shares”. The main business was transformed into a securities service industry, and the industrial part covered waterproof membranes, trade, etc. In terms of the shareholding structure, the company is controlled by Xinhu Group. The shareholding ratio has decreased in recent years, and the equity participation of Zhejiang state-owned shareholders has gradually increased. The company focuses on building brokerage firms with wealth management characteristics, and insists on taking the wealth management business as the lead to promote development.

Brokerage business: Fintech and wealth management two-wheel drive. The subsidiary Xiangcai Securities accounts for a higher share of brokerage revenue than the industry average. The company is committed to cooperating with Internet platforms to focus on building a “platform+license” specialty brokerage firm. Taking advantage of its equity advantages, it has now begun to see results.

(1) Cooperation with Yimeng: Yimeng's business revenue mainly comes from financial information and data services (accounting for 98% of revenue in 23 years), and ToC business is the main source of revenue. Yimeng Investment has excellent investment business capabilities, bringing room for cooperation with Xiangcai Securities. The main cooperation between the two sides includes Internet distribution, business empowerment, etc. The two sides are expanding the “platform+license” model to help transform wealth management.

(2) Cooperation with Big Intelligence: In terms of the revenue structure of the Big Intelligence business, multiple businesses of insurance brokerage, data services, overseas business, and information services have all become the pillars of business revenue. The cooperation between Xiangcai and Daishui has a long history.

The 2015 partnership led to a significant increase in transaction volume. In 2021, Xiangcai Co., Ltd. acquired 15% of Dazhihui's shares, and the two sides achieved further cooperation in brokerage, technology and wealth management business.

Industrial sector: Focus on the main business and continue to dispose of loss-making sectors. The risk of subsequent depreciation is expected to be manageable. From 2019 to 2020, the company sold shares in three holding subsidiaries. Its subsidiary White Swan Pharmaceutical (now renamed “Harbin Xinnongda Food Co., Ltd.”) and Hagoke Soybeans have both been shut down. Hacoke Soybeans has been fully depreciated, and all of White Swan Pharmaceutical's shares have been sold. Taking into account its properties and patents, it is expected that the assets will be better compensated for losses after disposal.

Other businesses: Steady development, no major risks.

(1) Asset management business: Brokerage asset management is mainly retail business, and net revenue has rebounded year-on-year. The scale of non-cargo base holdings has increased, and revenue contributions have gradually increased.

(2) Investment business: The scale is small, and the overall proportion is not high. The main types of debt are corporate bonds and corporate bonds.

(3) Heavy capital business: The credit business is mainly a dual finance business. The share of fixed-income self-employment has risen, and the fluctuation is slightly higher than that of the industry.

Valuation review: Since 2021, Xiangcai Co., Ltd. has had two relatively significant excess earnings. In the May 2021 market, the brokerage sector experienced a round of trading. As a sub-new stock, the company rose 93%, outperforming the brokerage sector by 78.1 pct; from October 29, 2022 to February 23, 2023, benefiting from the three arrows of real estate, the market's positive expectations for real estate shareholders, compounded by the catalyst brought about by the signing of a brokerage business cooperation agreement between the company and Yimeng. During this period, Xiangcai shares rose 79.3%, outperforming the market by 60.2 pct.

Investment advice: We expect the 2024/2025/2025/2026 EPS of Xiangcai Co., Ltd. to be RMB 0.05/0.06/0.08 and RMB 4.18/4.24/4.31 respectively. The PB corresponding to the current stock price is 1.52/1.50/1.47 times, respectively, and the weighted average ROE is 1.25%/1.50%/1.85%, respectively. The shareholding ratio of the company's real estate shareholders has decreased, and the equity participation of state-owned shareholders has increased, and they are optimistic that corporate governance will continue to improve; adhering to the development path of brokerage firms with wealth management characteristics, in line with the development trend of the securities industry, the “platform+license” strategy for wealth management business is beginning to bear fruit. Under the general trend of wealth management, the company's future business development has great potential for growth. Along with capital market reforms and wealth management transformation, the company is expected to usher in new opportunities for growth. Referring to comparable company valuations, considering that the light capital business of Xiangcai Securities accounts for a relatively large share and ROE has high room for growth, we gave the 2024 performance a 2.1 times PB valuation, with a target price of 8.6 yuan. Covered for the first time, giving it a “Recommended” rating.

Risk warning: Risk of major litigation matters, risk of equity pledges, and the effectiveness of strategic cooperation falls short of expectations.