Incident: 8/30, CICC disclosed its 2024 mid-year report, and the performance fell short of expectations. 1H24 achieved revenue of 8.91 billion yuan/yoy -28.3%; net profit to mother of 2.23 billion yuan/yoy -37.4%, weighted average ROE of 2.12% /yoy-1.67pct. 2Q24's net profit to mother was 0.99 billion yuan/yoy -24.1% /qoq -20.2%. The decline in 2Q24 performance was mainly affected by business and management expenses (+66.0% month-on-month), and the main business revenue has actually improved month-on-month.

Net income from handling fees and commissions was under pressure, and earnings from proprietary investments declined slightly. The company's revenue by business line in the first half of 2024/yoy: brokerage 1.77 billion/ -29.1%, investment bank 1.28 billion/ -35.7%, asset management 0.56 billion/ -15.0%, net interest income -0.81 billion/ incomparable, investment 4.25 billion/ -4.0%. Revenue share: brokerage 19.9%, investment 47.7%, investment banking 14.4%, asset management 6.2%, net interest income -9.1% (excluding other fee income and long-term stock investment). In addition, the company's exchange earnings in the first half of the year were 0.66 billion yuan, down 63.5% year on year, mainly due to fluctuations in profit and loss due to exchange rate changes in foreign exchange derivatives transactions carried out to hedge against foreign currency exposure.

The overall investment banking business is under pressure, and the contribution of bond underwriting is increasing. The scale of A-share IPOs and refinancing declined significantly year on year, and the scale of credit bond issuance increased 5% year over year to 8.96 trillion yuan, putting pressure on the industry's investment banking business revenue. CICC's IPO lead underwriting amount in the first half of the year was 1.57 billion yuan, ranking 8th in the industry; the refinancing lead underwriting amount was 8.66 billion yuan, ranking second in the market. The Hong Kong stock market and underwriting of Chinese US stocks are relatively good. The Hong Kong stock refinancing issue was 0.85 billion US dollars, ranking first in the market; the IPO/refinancing issuance of Chinese US stocks was 0.147/0.25 billion US dollars, respectively, which is a significant increase. CICC's domestic bond underwriting scale was RMB 312.5 billion, up 1.7% year on year; overseas bond underwriting scale was 2.2 billion US dollars, yoy +24.2%.

The management scale of the asset management business increased slightly by 3% to 1.25 trillion yuan. According to data disclosed by the company, the scale of the pooled asset management plan, single asset management plan, and special asset management plan related to handling fees and commission income was 160.9 billion yuan, 429.5 billion yuan, and 159.7 billion yuan respectively, +15%, -7%, and -7% at the end of the previous year. The size of public funds was 179.2 billion yuan, an increase of 25% over the end of the previous year; the size of private equity investment funds was 317 billion yuan, an increase of 7% over the end of the previous year.

The wealth management business is under pressure, and fixed income has increased dramatically. Wealth management business: In the first half of the year, the company's wealth management business product holdings stabilized at 340 billion yuan. Among them, the size of buyer investment products composed of products such as “China 50,” “Micro 50,” and “Public Fund 50” stabilized at nearly 80 billion yuan. The total number of wealth management clients at the end of 1H24 was 7.7333 million, and the total asset value of customer accounts was 2.76 trillion yuan. Agent trading, trading seats, and consignment sales revenue were 1.507, 0.306, and 0.381 billion yuan respectively. YOY was -14.5%, -38.6%, and -46.2% respectively. Stock business: 1H24's stock business revenue was 1.602 billion yuan, yoy -47.2%; fixed income business revenue was 2.18 billion yuan, yoy +66.4%. The company's transactional financial assets at the end of the period were 248.4 billion yuan, down 12.7% from the end of the previous year, mainly due to a decrease in the scale of equity investment, but the increase in the scale of bond investment offsetting it; investment in other debt instruments was 78.5 billion yuan, an increase of 19.6% over the end of the previous year; investment in other equity instruments was 1.72 billion yuan.

Investment analysis: Downgrade 24E profit forecast, add 25-26E profit forecast, downgrade from buy rating to increase holdings rating.

We chose Guoxin Securities, China Merchants Securities, Orient Securities, and China Galaxy, which have similar net assets to CICC as comparable companies. According to Wind's unanimous forecast, the average 2024 EBVPS is 10.66 yuan/share, and the average value of comparable brokers' 2024 EPB is 1.01 times higher. We believe that compared to comparable companies, CICC has the following business advantages: 1) Investment business: Currently, under the influence of strict regulations on equity financing, the performance of the brokerage investment industry is under pressure in the short term. Looking at the investment banking business in the long term, it can channel customer resources such as wealth management and PE business. As its dominant business, CICC's investment banking business has shown significant advantages over comparable companies in terms of historical underwriting scale, current project reserves, and talent team (number of insurers). We believe that after strict supervision, the investment banking business will survive the fittest, increase concentration, and as the exhibition environment is optimized, equity financing in the investment banking business will return to normal in the future. CCC will gradually release reserve projects, and the investment industry's performance is more flexible than that of the company. 2) Wealth management:

Regulation guides brokerage firms to return to the role of “social wealth” managers. In the future, the focus of brokerage construction will return to wealth management. CICC currently has data such as buyer investment size (over 80 billion) and contracted customer assets at the leading level among comparable companies, and will continue to deliver results under the impetus of policy. 3) International business: CICC's overseas business layout is perfect. In the context of supervision and support for Chinese enterprises to go overseas, the company can rely on its strong brand advantages and strength to obtain more overseas business and market share. Currently, CICC's overseas business revenue and net profit margin are higher than those of comparable brokerage firms. 4) Shareholder Haier Jinying reduced its holdings and gradually cleared up the factors that suppressed the company's stock price. Based on the above comprehensive analysis, we believe that CICC should enjoy a higher premium over comparable company valuations. Considering that the current valuation of comparable companies has basically bottomed out (close to 18 years), we are giving CICC an 8% premium (1.68 times) on the current PB (LF) basis, corresponding to a target price of 30.9 yuan/share. There is room for an increase of 8% from the current closing price of 28.59 yuan. At the same time, we added a 25-26E profit forecast.

We expect CICC 24-26E to achieve net profit of 5.2, 5.8, and 6.4 billion yuan (originally forecast 24E 17.6 billion yuan), -16%, +12%, and +10% year-on-year, respectively.

Risk warning: On January 5, 2024, the China Securities Regulatory Commission took administrative supervision measures to issue a warning letter against CICC.

On January 12, 2024, the Zhejiang Securities Regulatory Bureau took administrative supervision measures to issue a warning letter against CICC; on April 24, 2024, the Beijing Securities Regulatory Bureau took administrative supervision measures to issue a warning letter against CICC.