Key points of investment

Event: Huatai Securities released its 2024 mid-year report. The company's 24H1 gross revenue was -5.05% to 17.441 billion yuan, and net profit to mother was -18.99% to 5.311 billion yuan YoY. Among them, total revenue for the 24Q2 single quarter was +86% month-on-month to 11.336 billion yuan, and net profit to mother was +32% month-on-month to 3.02 billion yuan.

Asset-heavy business: Proprietary business improved marginally, and net interest income achieved positive growth. 1) Proprietary business: 2024H1's self-operated business revenue (investment income - return on investment in joint ventures plus net income from changes in fair value) was 4.214 billion yuan, down 28% year on year, the biggest drag on the company's performance decline. In the 24Q2 single quarter, the company's self-operated business revenue was +88%/+24% month-on-month respectively to 2.334 billion yuan, which improved significantly. 2) Net interest income: 2024H1's net interest income was +11% to 0.711 billion yuan, and the growth rate was corrected again. It was mainly due to the continuous decline in the 24H1 market transfer scale, which led to the company's interest expenses of -61% to 0.243 billion yuan YoY.

Asset-light business: Investment banking business performance is under pressure, and asset management business performance is outstanding. 1) Investment business:

2024H1's investment banking revenue was -42% to 0.93 billion yuan, roughly the same as the overall decline in the industry (the total investment banking revenue of 24H1 listed brokerage firms was -41% YoY). 24H1's IPO underwriting volume was -58% year-on-year to 5.033 billion yuan, but the market share increased from 5.5% of 23H1 to 16.6%, and the advantage was still stable. 2) Brokerage business: The total share base turnover of 2024H1 market was -6% to 989.6 billion yuan, and the company's brokerage revenue was -14% to 2.72 billion yuan. The company continues to promote product and service innovation on the “Zangle Wealth Connect” platform. Relying on AI technology and big data analysis capabilities, the company continues to expand special trading tools and upgrade the refined operation model. 3) Asset management business: 2024H1's asset management business revenue was +6% to 2.22 billion yuan, and the performance was significantly superior to the industry as a whole (total asset management business revenue of 24H1 listed brokerage firms -1% year over year). The scale of 24H1 company's public fund/pooled asset management/single asset management/special asset management was +18%/+4%/+41%/-9% year-on-year to 1,108/59.1/160.3/175.7 billion yuan, respectively.

Profit forecast and investment rating: Based on the company's 24H1 business situation, we lowered our previous profit forecast. We expect the company's net profit to be 11.962/12.928/13.821 billion yuan in 2024-2026 (previous values were 131.10 /141.82 /15.102 billion yuan, respectively), corresponding growth rates were -6.18%/8.08%/6.91%, respectively, and the corresponding EPS was 1.32 /1.43/1.53 yuan, corresponding to the current market value The 2024-2026 PB valuation was 0.70/0.66/0.62 times, respectively. I am optimistic that after the trading sentiment recovers, the company will continue to consolidate the competitive barriers of leading brokerage firms, and at the same time continue the growth trend by relying on the core competitiveness of technology to maintain a “buy” rating.

Risk warning: 1) Decrease in market transaction activity; 2) Stock market fluctuations impact proprietary investment returns.