Incident: 8/30, Huatai Securities disclosed 1H24 operating results, which were slightly better than expected. 1H24 achieved revenue of 17.4 billion yuan/yoy -5%; net profit of 5.31 billion yuan/yoy -19%; 1H24 weighted average ROE of 3.18% (unannualized) /yoy-1.05pct.

2Q24 net profit to mother 3.02 billion yuan/yoy -9% /qoq +32%.

1H24 asset management bucked the trend. The decline in investment banks was better than that of the industry. Depreciation surged back to boost performance, and private equity investment was clearly pressured by the market. 1H24 Huatai Securities achieved main revenue of 12.2 billion yuan/yoy -27%, specific business line revenue/yoy: brokerage 2.72 billion/ -14%, investment bank 0.93 billion/ -42%, asset management 2.22 billion/ +6%, net interest 0.71 billion/yoy +11%, net investment 4.43 billion/yoy -40%, and long-term stock investment 0.63 billion/ -50%. Revenue share: Brokerage 22%, investment income 36%, investment banking 8%, asset management 18%, net interest 6%, long-term stock investment 5% (excluding other fees). 1Q24 and 2Q24 depreciated 0.24 and 0.27 billion yuan respectively to leverage certain profits; due to the primary market adjustments, private equity investment subsidiary Huatai Zijin and innovative investment subsidiary Huatai Innovation 1H24 lost 0.65 billion yuan and 0.082 billion yuan respectively, partly dragging down the company's performance.

The company bucked the trend and expanded its investment team, demonstrating its determination to transform wealth management, and the market share of the two finance companies declined slightly. In the context of declining 1H24 market trading, the company built a wealth management system driven by the headquarters, linked, and integrated operation to build a team of high-quality talents. At the end of the period, the company registered 3,311 investors with the China Securities Association, an increase of 117 over the end of 2023. We believe that in an environment where peers adopt cost reduction and efficiency, the company bucked the trend and expanded its investment talent team, demonstrating the importance the company attaches to wealth management business.

In terms of consignment sales, financial product sales during the reporting period were 227.75 billion yuan/yoy +9%, and consignment revenue was 0.248 billion yuan/yoy -28%.

At the end of the period, the company's two financing balance was 105.55 billion yuan/yoy -9%, with a market share of 7.13%, a slight decrease over the previous year; the balance to be repurchased in the company's statement was 4.472 billion yuan, and the guarantee ratio was 237.07%, and the risk was manageable.

The year-on-year decline in the IPO business was significantly superior to that of the industry, and the industry ranking rose to 2nd place. In terms of IPO business, according to Wind data, the company completed an IPO underwriting of 5.033 billion yuan/yoy -58% (VS industry yoy -86%), with a market share of 16.6% /yoy+11.2pct. The gap between underwriting scale and CITIC Securities, which is number one in the industry, narrowed to 0.7%. In terms of debt commitments, 1H24's debt coverage was 536.1 billion yuan/yoy -7% (VS industry yoy -1%), but the company ranked 3rd in the industry (after CITIC Securities and CITIC Construction Investment), and the industry ranking was stable year over year.

Major asset management businesses contribute steadily to performance. In 1H24, the company's public offering business contributed 0.98 billion to the total profit of the group, accounting for 19% of the total profit. Among them, Huatai Berry Fund (holding 49.0% shares) 1H24 net profit 0.32 billion yuan, yoy +35%; Huatai Asset Management 1H24 net profit 0.48 billion yuan/yoy -12%. In terms of scale, Huatai Berry's non-commodity AUM at the end of the period was 553.447 and 375.25 billion, respectively, +13% and +32% compared to the beginning of the year; 2Q24 Huatai Asset Management's average monthly private equity asset management scale was 218.6 billion yuan/qoq +16%.

Investment analysis opinion: Lower profit forecasts and maintain buying ratings. 1H24's investment income performance fell short of expectations. We lowered the investment return assumption of Huatai Securities, thereby lowering the profit forecast. Huatai Securities 24-26E is expected to achieve net profit of 15.7, 12.3, 13.9 billion yuan (original forecast 16.6, 12.8, 14.2 billion yuan), +23%, and +13%, respectively.

Huatai Securities is leading the way in wealth management and fintech layout. Looking at the investment income generated by AssetMark throughout the year, it is expected that the investment income generated by AssetMark will support performance and maintain Huatai Securities's “buy” rating.

Risk warning: The delivery of the AssetMark transaction still requires the approval, approval, notice or filing of specific government departments; in April 2024, the Jiangsu Securities Regulatory Bureau took corrective regulatory measures against Huatai Securities; in June 2024, Huatai United Securities received a warning letter issued by the Shanghai Stock Exchange; in May 2024, Huatai Asset Management received a warning letter from the Shanghai Securities Regulatory Bureau.