Incident: 8/30, Guolian Securities disclosed 1H24 operating results, which is basically consistent with the performance report. 1H24 achieved revenue of 1.09 billion yuan/yoy -40%; net profit 0.088 billion yuan/yoy -85%; 1H24 weighted average ROE of 0.48% (unannualized) /yoy-3pct.

2Q24 net profit of 0.31 billion yuan/yoy -22% /qoq reversed losses.

Performance attribution: The 2Q24 month-on-month reversal of results was mainly driven by investment returns. Under fluctuations in the equity market, Guolian Securities lost 0.15 billion dollars in investment income. The company promptly adjusted the types of self-operated holdings. The equity investment side was backed by dividend value stock allocation, optimized holdings and multiple measures to control risk in terms of equity derivatives. 2Q24's investment income of 0.52 billion yuan/yoy -11% /qoq drastically reversed losses and corrected losses, which was the biggest driver of the improvement in single-quarter results in the second quarter.

1H24 brokerage and asset management revenue bucked the year-on-year trend, and business lines other than net interest improved significantly in the 2Q24 single quarter.

1H24 Guolian Securities achieved main revenue of 1.07 billion yuan/yoy -40%, specific business line revenue/yoy: brokerage 0.28 billion/ +7%, investment bank 0.17 billion/ -40%, asset management 0.31 billion/ +271%, net interest -0.09 billion/ loss, net investment 0.37 billion/yoy -61%.

Revenue share: brokerage 26%, investment income 35%, investment banking 16%, asset management 29%, net interest -8% (excluding other fees and long-term stock investments). A month-on-month comparison of business lines in a single quarter in 2Q24: brokerage qoq +58%, investment bank qoq +17%, asset management qoq +18%, net interest losses increased, and net investment qoq significantly reversed losses.

The expansion was steady, and the 2Q24 annualized return on investment was 3.85%. At the end of 1H24, Guolian Securities had total assets of 93.3 billion yuan/7% compared to the beginning of the year, with net assets of 18.3 billion yuan/+3% compared to the beginning of the year; the financial investment scale at the end of the period was 52.4 billion yuan/+2% compared to the beginning of the year, of which transactional financial assets were -15% at the end of 1Q24 (mainly stocks, public funds, private equity funds, etc.). Other debt investments and other equity instruments were +22% and +17%, respectively, compared with the end of 1Q24. Based on the 2Q24 single-quarter investment income, the company's annualized return on investment reached 3.85% /+1.26pct compared to 2023.

New developments in epitaxial mergers and acquisitions: the draft restructuring plan has been implemented, and integration has entered a period of acceleration. Recent developments: On 2024/8/8, Guolian Securities disclosed a draft merger and restructuring of Minsheng Securities. Due to the withdrawal of Oceanwide Holdings from this transaction (holding 0.74% of Minsheng Securities), Guolian Securities plans to change the scope of shares in the M&A and restructuring of Minsheng Securities to 99.26%. Excluding the cash dividends and share repurchases of Minsheng Securities after excluding the evaluation benchmark, the transaction price for 99.26% of Minsheng Securities's shares was 29.492 billion yuan. The estimated PB of this transaction was 1.84x (calculated based on Minsheng Securities' net assets of 16.147 billion yuan at the end of 1H24); the issue price of this transaction was 11.17 yuan/share, a 16% premium over the closing price of China League Securities on August 30. Supporting fundraising:

In the merger and acquisition transaction, Guolian Securities plans to simultaneously raise no more than 2 billion yuan in supporting capital, and plans to increase the capital of Minsheng Securities in its entirety.

Pay attention to the subsequent leapfrog development effect of the League of Nations and Minsheng to achieve “1+1>2” through business integration. 1) Comprehensive strength has been greatly improved. According to the “Asset Assessment Report” issued by China Union Assessment in the merger and acquisition draft, the assessed value of Minsheng Securities under the Net Asset Market Act was 29.89 billion yuan at the end of 1Q24, and the net assets after the merger of Guolian Securities were 47.8 billion yuan/surpassed Fangzheng Securities to rank 16th in the industry (1Q24 caliber, Guolian Securities ranked 37th in the industry in 1Q24). 2) Investment banking business collaboration. Minsheng Securities's investment banking business strength is outstanding. Under the tightening of regulatory policies, the advantages of Minsheng Securities's IPO business are prominent. 1H24 completed an IPO underwriting of 2.78 billion yuan, with a market share of 9.2% /yoy+3.9 pct, ranking 3rd in the underwriting scale industry. 3) Expansion of regional coverage of wealth management. Minsheng Securities has a wide range of business channels. According to the merger and acquisition draft, Minsheng Securities has 87 branches, covering Henan, Beijing, Shanghai, Guangdong, Zhejiang, Hubei, Shandong and other regions, with a reasonable network layout; while the League of Nations branches is concentrated in the Yangtze River Delta (mainly within Jiangsu Province), the merger can effectively complement the regional coverage of the League of Nations Securities branches.

Investment analysis: Lowered 24-25E profit forecast, added 26E profit forecast, and maintained buying rating. Considering that the company is a sub-new stock listed on A-shares in July 2020, we selected the listed brokerage firm Daiichi Chuangye, Shanxi Securities, which has a net asset size similar to Guolian Securities, and Zhongtai Securities and CICC (A), which have been listed in the past three years and have good company fundamentals, as comparable companies. According to Wind's unanimous forecast, the average 2024E BVPS is 8.85 yuan/share, the average value of comparable brokers' 2024 EPB is 1.20 times, and the PB (LF) of the League of Nations Securities is 1.56 times. Considering that the Guolian Securities business is currently in the active expansion stage, if the transaction with Minsheng Securities progresses smoothly, it can achieve leapfrog expansion in capital strength, and has strong development potential in wealth management, investment banking business, etc. After taking into account the strong growth of Guolian Securities, the current PB (LF) 20% premium (1.87 times) was given to the corresponding target share price of 11.98 yuan/share. The corresponding target share price is 11.98 yuan/share. At the same time, we added a profit forecast of 26E. The company's 24-26E net profit is expected to be 0.65, 1.02, and 1.18 billion yuan (previously 24-25E forecast 1.43 and 1.93 billion yuan), -4%, +59%, and +16% compared to the same period last year.

Risk warning: On March 22, 2024, the Shanghai Stock Exchange issued a written warning decision against Huaying Securities, a subsidiary of Guolian Securities.