Matters:

Fangzheng Securities released its 2024 interim report. Total revenue after excluding other business revenue: 3.7 billion yuan, -8% year-on-year, 1.7 billion yuan in a single quarter, and -0.25 billion yuan month-on-month. Net profit to mother: 1.35 billion yuan, -6.1% year over year, 0.57 billion yuan in a single quarter, -0.22 billion yuan month on month.

Commentary:

Leverage increased year on year, and ROE declined year on year due to declining market sentiment. The company's ROE during the reporting period was 2.9%, -0.3 pct year-on-year. ROE in a single quarter was 1.2%, -0.5pct month-on-month. Let's take a look at DuPont's split:

1) The company's financial leverage ratio at the end of the reporting period (total assets excluding customer funds) was: 4.0 times, +0.1 times the previous year, and -0.2 times the previous month.

2) The company's asset turnover ratio during the reporting period (total assets excluding customer funds, total revenue excluding other business revenue) was 2%, -0.4 pct year over year, and the asset turnover ratio in a single quarter was 0.9%, -0.1 pct month-on-month.

3) The company's net profit margin for the reporting period was 36.4%, +0.7pct year on year. The net profit margin for the single quarter was 32.8%, or -6.9pct month-on-month.

Leverage has been increased, and the debt cost ratio has been reduced. Looking at the balance sheet, after excluding customer capital, the company's total assets were 185.2 billion yuan, +14.79 billion yuan year on year, and net assets: 46.8 billion yuan, +2.25 billion yuan year on year. The leverage ratio was 4x, +0.13x year over year. The company's interest-bearing debt balance was 112.9 billion yuan, -1.7 billion yuan month-on-month. The debt cost ratio for the single quarter was 0.6%, -0.1 pct month-on-month, and -0.2 pct year-on-year. On August 13, 2024, according to the Shanghai Stock Exchange bond information platform, the company accepted the 20 billion yuan small public bond application. It is optimistic that the company's capital cost ratio will be reduced along with the issuance of new bonds.

The equity market sentiment has declined, and the return on proprietary businesses has declined. The total net revenue from the company's heavy capital business was 1.73 billion yuan, or 0.75 billion yuan in a single quarter, -0.23 billion yuan month-on-month. The net return on the heavy capital business (non-annualized) was 1.1%, 0.5% in a single quarter, -0.2pct month-on-month. Let's break it down:

1) The total revenue from the company's own business (change in fair value+net income from investment - net income from joint ventures) was 1.2 billion yuan, 0.46 billion yuan in a single quarter, or -0.28 billion yuan month-on-month. The yield from self-employment in a single quarter was 0.7%, -0.5pct month-on-month. In comparison, the average yield of active equity funds in a single quarter was -2.6%, and the average yield of pure bond funds was 1%.

2) Credit business: The share of the two financing markets increased month-on-month. The company's interest income was 2.07 billion yuan, or 1.01 billion yuan in a single quarter, -0.05 billion yuan month-on-month. The scale of the two finance business was 30 billion yuan, -1.13 billion yuan month-on-month. The market share of Liangfinance was 2.03%, +0.16pct year-on-year.

3) Pledging business: The balance of financial assets purchased and resold was 8.2 billion yuan, -2.51 billion yuan month-on-month.

The decline in brokerage business was lower than the decline in industry turnover. Brokerage revenue was 1.59 billion yuan, or 0.79 billion yuan in a single quarter, -2.5% month-on-month. The average daily market turnover during the comparison period was 832.15 billion yuan, -7.3% month-on-month.

Investment banking business improved month-on-month. Investment banking revenue was 0.08 billion yuan, or 0.04 billion yuan in a single quarter, +0.003 billion yuan month-on-month. Looking at market sentiment during the comparison period, the IPO lead underwriting amount was 3.27 billion yuan, -85.1% month-on-month, the refinancing lead underwriting amount was 27.46 billion yuan, -65.9% month-on-month, and the corporate creditor underwriting amount was 682.75 billion yuan, or -38.3% month-on-month.

Asset management revenue was $0.12 billion, or 0.06 billion yuan in a single quarter, -0.004 billion yuan month-on-month.

Investment advice: Changes in the company's performance or overall advantage over market sentiment. The 20 billion yuan small public bond application is accepted, and it is optimistic that the company's capital cost ratio will be reduced along with the issuance of new bonds. The company's 2024/2025/2026 EPS is expected to be 0.31/0.35/0.39 yuan, and BPS is 5.78/6.11/6.48 yuan respectively. The PB corresponding to the current stock price is 1.19/1.12/1.06 times, respectively, and the ROE is 5.49%/5.81%/6.13%, respectively. We maintain the company's valuation forecast of 1.6 times PB in 2024, corresponding to the target price of 9.25 yuan, and maintain the “recommended” rating.

Risk warning: risk of shareholder changes, increasing downward pressure on the economy, reduction of capital holdings in the North, etc.