1H24 Results Exceed Our Expectations

The company's 1H24 revenue was -2% to 17.1 billion yuan, adjusted revenue (excluding other business revenue, mainly commodity trade) -4% to 9.8 billion yuan, net profit to mother -11% to 4.4 billion yuan, annualized ROAE -2.3ppt to 6.6% year over year. Performance exceeded our expectations, mainly due to higher investment income; 2Q24 net profit +2.5% YoY /month-on-month +69% to 2.8 billion yuan, single-quarter annualized ROE recovered to 8.3 billion yuan % The adjusted leverage ratio at the end of the period was -0.46x y/month-on-month -0.12x/+0.21x compared to the beginning of the year to 4.37x. In addition, the company announced that it plans to pay an interim cash dividend of 0.92 billion yuan, accounting for 20.93% of the current profit.

Development trends

Brokerage business declined with the market. The company's net revenue from 1H24 brokerage business was -13% to 2.5 billion yuan (securities brokerage -15% /futures brokerage +16%), in securities brokerage: -10% to 2.1 billion yuan (vs. total market share base transaction volume -8%), revenue from consignment financial products -40% to 0.15 billion yuan, transaction unit seat rental revenue was -42%; at the end of the period, the number of customers holding financial products was +1.3% compared to the beginning of the year, compared with the number of investors +119 at the beginning of the year to 3,917.

Investment banking and asset management businesses rose against the market. 1) The company's 1H24 investment bank revenue was +42% to 0.27 billion yuan, of which bond underwriting was +22% to 203.5 billion yuan, and equity underwriting also increased significantly year over year; 2) 1H24 asset management net revenue was +2% to 0.23 billion yuan, and the brokerage asset management scale was +8% to 101.7 billion yuan compared to the beginning of the year, with the pooled asset management scale +37% to 55.7 billion yuan compared to the beginning of the year.

Investment income grew steadily on a high base. The company's 1H24 investment income (investment income+fair value change+exchange profit and loss - joint venture and joint venture investment) was +5% to 4.9 billion yuan; if interest income from debt investments & other debt investments was considered, the year-on-year comprehensive investment income was -2% to 6.5 billion yuan, and the return on investment in annualized comprehensive financial assets was -0.3ppt to 3.5% year-on-year.

Net interest income declined year-on-year. 1H24 was -17% to 1.8 billion yuan (interest income -2% /interest expense +4%). Among them, the two loans maintained a year-on-year interest ratio of -9%/market share of 5.0%, and interest income from debt investments and other debt investments was -22%/-17%, respectively.

In terms of international business, 1H24 Galaxy International Holdings has revenue of 1.05 billion yuan and net profit of 0.16 billion yuan; at the same time, Galaxy - Lianchang changed its name to Galaxy Overseas after completing the rebranding, continuing to maintain its leading position in the Southeast Asian core market, and the brokerage market ranking has risen steadily compared to 2023.

Profit forecasting and valuation

Considering the decline in market activity, we cut the company's 24e/25e net profit by 10%/9% to 7.4 billion/8.1 billion yuan. Currently, the company's H shares are traded at 24e/25e 0.4x/0.3x P/B (excluding perpetual bonds); based on PB, it maintains a target price of HK$5.1, corresponding to 24/25e 0.5x/0.4x P/B (excluding perpetual bonds) and 33% upward space; maintaining an outperforming industry rating.

risks

The stock and bond market fluctuates greatly; policy uncertainty; industry competition exceeds expectations.