Incident: Huatai Securities released its 2024 mid-year report, achieving operating income and net profit of 17.441 and 5.311 billion yuan, respectively, and a weighted ROE of -1.05pct to 3.18% year over year; of these, 2Q2024 single quarter revenue and net profit to mother were 11.336 and 3.02 billion yuan, +85.7% and +31.8%, respectively.

Brokerage & investment banks declined with the market, and the investment business dragged down performance. On the revenue side, net income from 1H2024 brokerage, investment, investment was 27.23, 9.31, 2.22, 0.711, and 4.429 billion yuan, respectively, -13.6%, -42.2%, +6.5%, +10.8%, and -40.4% year-on-year, accounting for 22.1%, 7.5%, 18.0%, 5.8%, and 35.9% of adjusted revenue, respectively; on the cost side, management expenses ranged from -16.6% to 7.201 billion yuan, and management expense ratios + 7.6pct reached 58.4%, and credit impairment losses rushed back 0.517 billion yuan, 0.099 billion yuan more than the same period last year. By region, 1H2024's domestic and overseas business revenue was 10.95 billion yuan and 6.491 billion yuan, respectively, -24.5% and +67.5% year-on-year respectively. Domestic and overseas operating profits were 4.561 and 1.017 billion yuan respectively, -41.1% and +7.3% year-on-year respectively.

Investment banks maintained their leading edge, and the scale of asset management bucked the trend. 1) Brokerage business, 1H2024 stock turnover in the Shanghai and Shenzhen markets was -9.2%, and the company's net revenue from proxy purchases, seats, and consignment sales was 1.912, 0.359, and 0.248 billion yuan, respectively, -9.2%, -10.0%, and -28.0% year-on-year respectively. 2) In the investment business, 1H2024's IPO and refinancing of 5 and 6.5 billion yuan, respectively, were -49.2% and -70.1%, respectively, and debt financing was 288 billion yuan, +25.9% year over year. Despite a sharp decline in investment bank revenue due to the phased tightening of equity financing, the company still had a leading edge in the equity and bond business. The company's equity financing and debt financing ranked second and third in the industry respectively in the first half of the year. 3) Asset management business. At the end of 1H2024, the company's asset management scale was +10.7% to 506 billion yuan. Among them, the consolidated, single, special, and public asset management scales were 591, 160.3, 175.7, and 110.8 billion yuan, respectively, +4.4%, +41.3%, -8.9%, and +18.0% year-on-year respectively.

The income from joint ventures and joint ventures contributed less to performance, and the investment side of Q2 has improved compared to Q1. 1) Investment business, the company's investment income (income from investment income+fair value change gain+net exchange income - investment income from joint ventures and joint ventures) was -40.4% to 4.429 billion yuan compared to the first half of the year, but 2Q2024's investment income improved compared to 1Q2024, +40.2% month-on-month; in addition, the investment income of joint ventures and joint ventures in the first half of the year was -49.8%, mainly due to a decline in valuations of various private equity funds and alternative investment projects, including Huatai Zijin. Financial assets at the end of 1H2024 were -11.4% to 425.2 billion yuan compared to the beginning of the year. 2) Credit business. At the end of 1H2024, the company's financing and purchase and resale financial assets were 103.6 and 18 billion yuan, respectively, -7.8% and +44.8% compared to the beginning of the year, corresponding to -12.5% and -18.7% year-on-year interest income from both financing and purchase and resale, respectively.

3) In the OTC derivatives business, as of the end of June, the company's revenue swaps and OTC options were 86.9 billion yuan and 142.5 billion yuan respectively, -22.5% and +27.2% year-on-year respectively; the company's derivative financial assets at the end of 1H2024 were +2.8% to 16.7 billion yuan compared to the beginning of the year.

Investment advice: Continue to be optimistic about the company's development concept of “one customer” internally and “one Huatai” to build a full-business chain service system through platform-based development and integrated operation. The company is expected to achieve net profit of 13.162, 14.504, and 16.8 billion yuan respectively in 2024-2026, +3.2%, and +15.8% year-on-year respectively. The closing on August 30 corresponds to the 2024 PB of 0.59 times, maintaining the “gain” rating.

Risk warning: risk of large fluctuations in the capital market; risk of a sharp decline in market transaction scale; risk of industry regulatory policies exceeding expectations and tightening