Huatai Securities released its 2024 interim report. In the first half of 2024, the company achieved operating income of 17.441 billion yuan, down 5% year on year; realized net profit of 5.311 billion yuan, down 19% year on year; net profit after deducting non-recurring profit and loss was 5.258 billion yuan, down 25% year on year, corresponding EPS 0.55 yuan, down 21% year on year; ROE was 3.18%, down 1.05 pct year on year. The decline in performance was mainly due to a decrease in investment banking revenue and investment income.

Brokerage performance is under pressure, and the wealth structure is optimized. In the first half of 2024, brokerage revenue was 2.723 billion yuan, down 14% year on year due to sluggish capital market conditions and a decline in trading volume. The company holds only 0.0142 million financial products, and the sales scale of financial products reached 227.748 billion yuan. The company continuously optimizes the wealth management business structure, optimizes platform-based operation strategies and service systems, and enhances customer stickiness.

Investment banks are under pressure to explore the direction of investment on their own. In the first half of 2024, as IPO reviews continued to be tightened, the total scale of stock financing in the market declined, and the company achieved investment banking revenue of 0.931 billion yuan, a year-on-year decline of 42%. In the first half of 2024, the company's equity underwriting amount was 19.545 billion yuan, down 73% year on year, ranking second in the industry; bond underwriting amount was 536.1 billion yuan, down 5% year on year, ranking third in the industry. Currently, the company has 21 IPO reserve projects, ranking third in the industry, and there is potential for future mergers and acquisitions.

Investment income from financial instruments declined in the first half of 2024 due to fluctuations in equity, derivatives, and equity market valuations. In the current period, investment business revenue (including changes in fair value) was 4.214 billion yuan, a decrease of 28% over the previous year. The company will actively promote the transformation of FICC's quantitative trading strategy, increase bond allocation, and continue to increase the scale of investment.

Asset management performance was impressive, and international business bucked the trend. In the first half of 2024, the company's asset management business fees achieved net revenue of 2.22 billion yuan, an increase of 6% over the previous year; AUM reached about 506 billion yuan, an increase of 6% over the end of 2023.

Among them, Huatai Asset Management Company issued 60 ABS orders, ranking second in the industry; the distribution scale was 42.428 billion yuan, ranking third in the industry. By the end of June, Huatai Berry's AUM reached 504.5 billion yuan (+42% YoY), and its broad-based index fund, the Shanghai and Shenzhen 300 ETF had a size of 211.8 billion yuan, ranking first in the Shanghai and Shenzhen non-monetary ETF markets; China Southern Fund's AUM reached 2.17 trillion yuan (+15% YoY). Overseas has become a new opportunity. The company's current international business revenue reached 6.491 billion yuan, an increase of 19% over the previous year. As of the end of June 2024, the total assets of the AssetMark platform were about 119.4 billion US dollars, an increase of 10% over the end of 2023. Subsequent asset sales operations are expected to provide capital for overseas business.

Risk warning: Market decline brings uncertainty to brokers' performance and valuation repair; risk of large market fluctuations; stricter financial supervision; risk of overseas supervision, etc.

Investment advice: Based on equity market fluctuations and the impact of new regulatory regulations on the securities business, we lowered the company's profit forecasts for 2024, 2025, and 2026 by 3.18%, 0.49%, and 1.01%, respectively, and predicted that the company's net profit due to 2024-2026 would be 134.85 yuan, 14.532 billion yuan, and 15.65 billion yuan, respectively, an increase of 5.8%/7.8%/7.7% year-on-year. The PE corresponding to the current stock price is 8.5/7.9/7.3x, and PB is 0.6/0.6/0.5x As an example of industry transformation, the company maintains a “superior over market” rating.