Matters:

CICC released its 2024 interim report. Total revenue after excluding other business revenue: 8.9 billion yuan, -28.3% year over year, 5 billion yuan in a single quarter, +1.17 billion yuan month-on-month. Net profit to mother: 2.23 billion yuan, -37.4% year over year, 0.99 billion yuan in a single quarter, -0.25 billion yuan month-on-month.

Commentary:

ROE dismantling: Both leverage and ROA have declined to a certain extent. The company's ROE during the reporting period was 2.1%, -1.4pct year-on-year. ROE in a single quarter was 0.9%, -0.2pct month-on-month. Let's take a look at DuPont's split:

1) The company's financial leverage ratio at the end of the reporting period (total assets excluding customer funds) was 4.6 times, -0.34 times year-on-year, and -0.1 times month-on-month.

2) The company's asset turnover ratio during the reporting period (total assets excluding customer funds, total revenue excluding other business revenue) was 1.8%, -0.6 pct year over year. The asset turnover ratio in a single quarter was 1%, +0.3 pct.

3) The company's net profit margin during the reporting period was 25.1%, -3.7 pct year on year. The net profit margin for the single quarter was 19.7%, -12.4 pcts month on month.

The debt cost ratio has declined overall. Looking at the balance sheet, after excluding customer capital, the company's total assets were 483.4 billion yuan, -19.49 billion yuan year on year, and net assets: 105.6 billion yuan, +3.27 billion yuan year on year. The leverage ratio was 4.6 times, -0.34 times year over year. The company's interest-bearing debt balance was 263.1 billion yuan, -11.69 billion yuan month-on-month. The debt cost ratio for the single quarter was 0.9%, -0.1 pct month-on-month, and -0.1 pct year-on-year.

The return on heavy capital businesses increased month-on-month. The total net revenue from the company's heavy capital business was 3.44 billion yuan, compared to 2.18 billion yuan in a single quarter, or 0.913 billion yuan. The net return on heavy capital operations (non-annualized) was 0.9%, 0.6% in a single quarter, +0.2pct. Let's break it down:

1) The total revenue from the company's own business (change in fair value+net income from investment - net income from joint ventures) was 4.25 billion yuan, 2.4 billion yuan in a single quarter, or +0.54 billion yuan over the previous quarter. The yield from self-employment in a single quarter was 1%, +0.2pct month-on-month. In comparison, the average yield of active equity funds in a single quarter was -2.61%, +0.98pct month-on-month, and +1.36pct year-on-year. The average yield of pure debt funds was +1.03%. -0.06pct month-on-month, -0.11pct year-over-year.

2) Credit business: The company's interest income was 4.43 billion yuan, 2.25 billion yuan in a single quarter, +0.073 billion yuan compared to the previous quarter. The scale of the two finance business was 33.2 billion yuan, -1.06 billion yuan month-on-month. The market share of the two finance loans was 2.24%, +0.1pct year on year.

3) Pledging business: The balance of financial assets purchased and resold was 28.8 billion yuan, +4.03 billion yuan compared to the previous month.

Brokerage revenue increased markedly from month to month. Brokerage revenue was 1.77 billion yuan, or 0.94 billion yuan in a single quarter, +13.1% month-on-month. The average daily turnover during the comparison period was 832.15 billion yuan, -7.3% month-on-month.

The investment banking business is generally stable. Investment banking revenue was 1.28 billion yuan, or 0.83 billion yuan in a single quarter, +0.38 billion yuan month-on-month. Looking at market sentiment during the comparison period, the IPO underwriting scale was 8.9 billion yuan, -62.4% month-on-month, refinancing underwriting scale was 54 billion yuan, -38.0% month-on-month, and the corporate bond+corporate bond underwriting scale was 995.9 billion yuan, +9.6% month-on-month.

The asset management business is stable. Asset management revenue was 0.56 billion yuan, or 0.29 billion yuan in a single quarter, +0.02 billion yuan month-on-month.

Investment advice: The company's performance declined month-on-month during the reporting period. Although the net yield of heavy capital businesses increased month-on-month, leverage declined to a certain extent. We expect the company's 2024/2025/2026 EPS to be 1.51/1.85/2.16 and BPS to be 19.33/20.76/22.43 respectively. The current stock price corresponds to 1.48/1.38/1.27 times the A share PB and 0.39/0.37/0.34 times the Hong Kong stock PB, respectively. Optimistic about the room for further expansion of the company's inventory after the optimization of regulatory indicators, CICC H shares were given a target valuation of 0.6 times PB in 2024, corresponding to the target price of HK$12.7, maintaining the “recommended” rating.

Risk warning: Market trading volume declined; risk appetite declined; capital market innovation fell short of expectations; real economy recovery fell short of expectations.