Incident: On August 28, CITIC Securities announced its 2024 semi-annual report. The results were better than expected. 1H24 achieved operating income of 30.18 billion/yoy -4.2%; realized net profit of 10.57 billion/yoy -6.5%, of which 2Q24 profit 5.61 billion/yoy -4.7% /qoq +13.2%; 1H24 weighted ROE (unannualized) was 3.96% /yoy-0.31pct.

Performance resilience is prominent in a weak market environment. Investment banking business is under pressure, and investment returns are increasing. 1H24's securities main revenue was 26.57 billion/yoy -9.9%. 1) Looking at the main revenue split: 1H24's brokerage, investment banking, asset management, net interest, and net investment income was 48.8, 17.4, 4.91, 1.12, and 13.23 billion yuan, respectively, accounting for 18.4%, 6.5%, 4.2%, and 49.8% of revenue; -7.8%, -54.6%, -1.1%, -47.4%, and +6.2%, respectively. 2) Impairment to boost profits: 1H24's credit impairment losses recouped 0.35 billion (1H23 calculated credit impairment 0.38 billion), mainly due to impairment recovery of financial assets bought and resold.

The international business performance was impressive. CITIC Securities' international profit increased year over year, and its capital strength was greatly enhanced.

1H24's overseas revenue was 6.09 billion/yoy +25.0%, accounting for 20.2% of revenue; at the end of the period, the company's overseas assets reached 303 billion/yoy +12.9%/accounting for 20.3% of total assets. The subsidiary CITIC Securities International 1H24 achieved revenue of 0.98 billions/yoy +22.2%, net profit of 0.23 billions/yoy +68.4%, and a net profit margin of 23.9% /yoy+6.6pct. The company increased the international capital of CITIC Securities by 6.53 billion yuan during the reporting period. At the end of 1H24, the net assets of CITIC Securities International reached 2.84 billion US dollars/yoy +76.3%, and the total asset size was 40.97 billion US dollars/yoy +16.5%.

Investment income has increased, the scale of investment has grown steadily, and the return on investment is steady. The final investment assets of 1H24 were 814.1 billion/ +8.8% compared to the beginning of the year, of which trading bonds were 223.8 billion/ +2.5% from the beginning of the year, the investment scale of other equity instruments increased by 57.5 billion yuan, and the final investment leverage was 2.91x/+0.13x compared to the beginning of the year; the equity derivatives business continued to deepen product innovation, and the nominal principal amount of equity derivatives at the end of the period was 461.6 billion yuan/yoy -32.3%; estimated 1H24 Return on investment 3.39% /yoy-0.35pct.

The brokerage business was launched along with it, the transformation of wealth management deepened, and the number of clients grew steadily. 1H24 achieved net revenue of 3.57 billion/yoy -10.7% from the purchasing business (average daily share base turnover yoy -7% in the 1H24 market, and the commission rate is expected to continue to decline), and 0.71 billion/yoy -11.1% from the consignment business. Deepening the transformation of wealth management: During the reporting period, the company focused on refined customer management, optimized the multi-market, multi-asset and multi-strategy financial product system, and optimized the customer service experience in all aspects; at the end of the period, the number of the company's customer base reached 14.7 million/yoy +8.9%, and the scale of custodial customer assets remained at the level of 10 trillion/a positive increase compared to the beginning of the year.

The investment banking business is clearly under pressure, but in an environment of strict supervision, the company's leading position in the investment banking business has been further consolidated. According to the release date statistics, 1H24's A-share IPO underwriting scale is 5.07 billion/yoy -85.1%, market share 16.7% /yoy+1.23pct, refinancing underwriting scale 15.4 billion/yoy -84.8%, market share 21.7% /yoy-11.0pct; bond underwriting scale 895.7 billion/yoy +3.1%, market share 14.6% /yoy+0.63pct, ranking first in the industry in terms of market share. In terms of project reserves, as of 8/28, the number of companies reviewing IPOs and refinancing companies was 38 and 41, respectively, significantly ahead of the second place (23 and 19). We believe that in the context of strict issuance and listing regulations, the “gatekeeper” responsibilities of intermediaries will be further consolidated to benefit leading brokerage firms with outstanding professional capabilities and sound compliance and risk control. The company's share is expected to increase further in the long run.

The profit of 1H24 Huaxia Fund declined slightly, the size of the mixed stock fund grew against the market, and the business layout of the asset management subsidiary progressed steadily. In terms of public offering business, 1H24 Huaxia Fund (holding 62.2%) achieved revenue of 3.67 billion/yoy -1.1% and net profit of 1.06 billion/yoy -1.2%, contributing about 6.2% of the group's profit. According to Wind statistics, at the end of 1H24, Huaxia Fund's non-cargo AUM 952.1 billion/ ranked second in the industry, with a share mix of 551.9 billion/+10.6% compared to the beginning of the year (the 1H24 industry's non-commodity, stock mix was +10% and -2% compared to the beginning of the year). In terms of brokerage asset management, 1H24 CITIC Securities asset management AUM was 1456.4 billion yuan, +4.9% compared to the beginning of the year, with a market share of 13.2% of the private equity asset management business, ranking first in the industry; 1H24 CITIC Asset Management achieved net profit of 0.29 billion yuan, and applications for public asset management licenses progressed steadily.

Investment analysis opinion: Under the policy direction of speeding up the construction of first-class investment banks, leading brokerage firms are expected to make better use of their professional advantages and help build a financial power in the new stage of capital market construction. As an industry leader, the company is expected to continue to benefit and maintain a “highly recommended” rating. The estimated net profit of CITIC Securities in 2024-2026E will be 19.6 billion yuan, 20.4 billion yuan, and 22.3 billion yuan, respectively, -1%, +4%, and +9% compared to the same period last year.

The 8/28 closing price corresponds to 24-26E dynamic PB of 1.06, 1.01, and 0.96x, respectively.

Risk warning: The downward pressure on the economy has increased; the activity of market equity transactions has declined sharply; the process of entering the market of residents' capital has slowed down.