Brokerage and asset management performed well, and proprietary investment dragged down performance

2024H1's total operating revenue/net profit to mother was 1.1/0.09 billion yuan, -40%/-85%, and 2024Q2's net profit for a single quarter was 0.3 billion yuan, a month-on-month reverse loss, -22% year over year, in line with the performance forecast range. The annualized weighted ROE was 0.96%, -6pct year over year, and the end-of-period leverage ratio (after customer security deposit) was 4.52 times, +0.32 times year over year.

The performance of brokerage and asset management was outstanding, reflecting cost reduction effects, and earnings from proprietary investment dragged down performance. Considering the continued downturn in the market environment, we lowered the company's 2024-2026 net profit forecast to 0.54/0.76/1.02 billion yuan (before 8.0/9.8/11.9), -20%/+41%/+35%, corresponding to 2024-2026 EPS of 0.2/0.3/0.4 yuan, respectively. The current stock price corresponds to 1.5/1.5/1.4 times PB. We are optimistic about the synergy effects after the company's acquisition of Minsheng Securities and maintain a “buy” rating.

The brokerage business performed well, with brokerage asset management and the growth in the size of the League of Nations and funds (1) The net revenue of the company's brokerage business was 0.28 billion yuan, +6.9% year over year, growing against the trend. Among them, net income from securities brokering/seating/consignment sales was -2%/+38%/+16%. The company comprehensively shaped a “general direction” wealth management brand, and the effects of wealth management transformation from a buyer's perspective continued to be reflected. 2024H1 added 0.1194 million customers, with a cumulative total of 1.8558 million customers, an increase of 10.06% over the previous year. The total number of contracted fund investment customers was 0.3194 million, an increase of 13.35% over the previous year. The authorized account asset size was 6.958 billion yuan, which was basically the same as the previous year, and a total of 30 cooperation channels were launched. (2) Net revenue from the company's investment banking business was 0.17 billion yuan, -40% year-on-year. 2024H1 completed 2 equity projects, including 1 IPO project, 1 refinancing project, 2 IPOs under review and 18 mentoring projects; 71 bond underwriting projects and 10 government bond distribution projects, with a total underwriting amount of 20.917 billion yuan. (3) The net revenue from the company's asset management business was 3.1 yuan, +111% year-on-year, mainly due to the year-on-year increase in the asset management scale of brokerage firms and the non-commodity AUM of the League of Nations. The asset management fiduciary capital of Guolian Securities was 124.8 billion yuan, an increase of 12.01% year over year, of which the pooled asset management plan was +108% year over year. The total asset management scale of the League of Nations Fund was 183.39 billion yuan, up 23% from the beginning of the year, and non-commodity AUM was 127.9 billion yuan, +26% compared to the beginning of the year.

Proprietary investment income is under pressure, and the cost reduction effect is reflected

(1) The company's investment income (including profit and loss from changes in fair value) was 0.38 billion yuan, with an annualized return on proprietary investment of 1.64% (2023H1 4.89%, 2024Q1 -1.24%). Derivatives business performance is expected to be poor due to market fluctuations. The size of proprietary financial assets is 46.9 billion yuan, +6% compared to the beginning of the year. (2) The company's net interest income -0.09 billion, of which interest income was 0.58 billion yuan, -15% year-on-year, and interest expenses were 0.67 billion yuan, +12% year-on-year, mainly due to the increase in the scale of financing and the reduction in the scale of investment in other debt. The average daily balance of 2024H1's two loans was 9.43 billion yuan, down 5.71% year on year; the average daily market share of the business scale was 6.165％, down 2% year on year.

(3) Business and management expenses were 1.03 billion yuan, -2% year-on-year, of which employee expenses were 0.63 billion yuan, -13% year-on-year.

Risk warning: Market fluctuations affect investment returns; the progress and results of integration are uncertain.