Incident: Xiangcai Co., Ltd. released its 2024 interim report. The company achieved total operating income of 1.093 billion yuan in 2024H1, -15.19% year-on-year, and realized net profit to mother of 0.073 billion yuan, or -46.30% year-on-year. Revenue/net profit attributable to mother under the financial statements of Xiangcai Securities, a wholly-owned subsidiary of 2024H1 Company, was -9%/-5% year-on-year to 0.72/0.17 billion yuan, respectively.

The decline in the company's profit was mainly due to losses to Dazhi Investment. The securities sector was operating steadily, and net profit was basically the same as the same period last year. The revenue/net profit of 2024H1 Xiangcai Co., Ltd. was -15%/-46% year-on-year to 1.09/0.07 billion yuan, respectively. The decline in the company's net profit to the mother was too high, mainly due to the 2024H1 Company's investment income of -19.52 million yuan as a shareholding company under the Equity Law. In the same period of 2023, Dazhi fully included the amount of 0.335 billion yuan paid to it by its actual controller Zhang Changhong in accordance with the mediation agreement, leading to a significant increase in net profit. The company confirmed investment income of 41.44 million yuan under the Equity Law. 2024H1 This change reduced the company's return on investment in joint ventures by 60.96 million yuan year over year. Xiangcai Securities, a wholly-owned subsidiary of 2024H1, continues to maintain an active and steady business style, solidly advancing the company's development strategy, and achieving net profit of 0.166 billion yuan, which is basically the same as the same period last year.

Securities sector: The asset-light business is under relative pressure, and the asset-heavy business insists on steady operation. 1) Brokerage:

The average daily share base turnover of the entire market was -6% to 989.6 billion yuan. Affected by the overall trading contraction in the market, the operating income of the 2024H1 Xiangcai Securities brokerage business was -16.08% to 0.306 billion yuan compared to the same period last year. 2) Investment banking: Strict supervision of 2024H1 equity financing continued, and the IPO/refinancing scale of the entire market was -85%/-69% year-on-year to 32.5/140.5 billion yuan. Affected by this, the net transaction fee revenue of the investment bank of Xiangcai Securities was -50% to 0.03 billion yuan compared to the same period last year. 3) Asset management: The asset management scale of 2024H1 Xiangcai Securities was +54% to 7.8 billion yuan, and the net revenue from asset management fees was +12% to 0.014 billion yuan. 4) Credit:

The revenue of the credit trading business of Xiangcai Securities in the first half of 2024 was -11% year-on-year to 0.2 billion yuan. Xiangcai Securities insisted on risk mitigation and pressure reduction. As of 2024H1, the stock pledge scale had been reduced to 0 million yuan.

5) Self-operated: The overall self-operated business of 2024H1 Xiangcai Securities continued to maintain a steady investment style. Thanks to the upward trend in the bond market, the revenue of the 2024H1 proprietary business of Xiangcai Securities was +32% to 0.24 billion yuan compared to the same period last year.

Industrial sector: The operating volume is limited, and the scale continues to drop. The company's industrial sector is small in size, accounting for less than 2% of the company's total assets as of 2024H1. The company revitalizes assets through various strategies such as shutdown and merger, cost reduction and efficiency, and enhances the competitiveness of existing assets through refined management methods such as personnel structure, product structure, and business model. 2024H1's revenue in the industrial sector was -22% to 0.314 billion yuan, mainly due to the company actively reducing the scale of trade.

Profit forecast and investment rating: According to the company's 24H1 business situation, we adjusted the 2024-2025 net profit forecast of Xiangcai Co., Ltd. to 0.146/0.194 billion yuan (previous values were 0.186/0.302 billion yuan, respectively), corresponding year-on-year growth rates were 22%/33%, respectively. The company's net profit to mother is expected to be 0.254 billion yuan in 2026, a year-on-year growth rate of 31%. The company's current market value is 125/94/72 times the 2024-2026 PE, respectively. We are optimistic about the company's development potential in the direction of fintech and maintain the “gain” rating.

Risk warning: 1) Risk of major litigation matters; 2) Strategic cooperation with Yimeng shares fell short of expectations; 3) The equity market fluctuated sharply.