Key points of investment

Incident: Nanhua Futures released its 2024 three-quarter report. The company achieved total operating income of 4.461 billion yuan from 24Q1 to 3, a year-on-year decrease of 7.99%; realized net profit to mother of 0.358 billion yuan, an increase of 20.07% over the previous year

The high increase in net interest income is expected to be due to the continuation of the overseas high interest rate environment and deepening overseas layout: in the first three quarters of 2024, South China Futures revenue was -8% to 4.46 billion yuan, and revenue after excluding other operating costs under the net value method was +7% to 1 billion yuan. Among them, net income from handling fees and commissions/net income from interest/other business revenue (net method) were 0.4/0.52/0.04 billion yuan, respectively. The high increase in net interest income is the main driving force for the company's performance growth. It is expected to be mainly due to the continuation of the overseas high interest rate environment (the average US federal funds interest rate was 5.31% in 2024Q1-3, +0.39pct compared to the same period of the previous year), and the deepening of the company's overseas business layout (the company's current global layout has basically been completed. It has now formed a comprehensive financial services platform spanning Asia and Europe, covering the global 24-hour trading period, with derivatives trading, clearing and services as the core).

Net income from handling fees and commissions declined slightly, and the future is expected to fully benefit from the new regulatory situation in the industry:

According to the Mid-Term Cooperation, the cumulative turnover of the national futures market from 2024Q1 to 3 was 441.24 trillion yuan, an increase of 3.75% over the previous year. The company's net revenue from handling fees and commissions from 24Q1 to 3 was -9.5% to 0.4 billion yuan, and the growth rate was less than the market turnover. On October 11, 2024, the General Office of the State Council forwarded “Opinions on Strengthening Supervision and Risk Prevention and Promoting High-Quality Development of the Futures Market” from the China Securities Regulatory Commission and other departments. The “Opinion” is based on the reality of the futures market. According to the three stages of 2029, until 2035, and the middle of this century, the “Opinion” designs reasonable levels and progressive development goals. At the same time, it proposes a series of policies and measures around the futures market to strengthen supervision, prevent risks, and promote high-quality development. Under the new regulatory framework, as a high-quality futures company, Nanhua Futures is expected to benefit from industry structure optimization while strengthening the quality and efficiency of serving the real economy and leading the high-quality development of the industry.

Profit forecast and investment rating: Nanhua Futures' domestic business is developing steadily and has outstanding advantages in overseas business, especially in overseas liquidation. With the accelerated two-way opening of China's futures market and the further clarification of high-quality development goals, the company is expected to continue to realize its development potential. Based on the company's operating conditions in the first three quarters of 2024, we slightly lowered our previous profit forecast. We expect the net profit of Nanhua Futures to be 0.472/0.57/0.619 billion yuan in 2024-2026 (previous value was 0.511/0.578/0.627 billion yuan), corresponding to a growth rate of 17.53%/20.72%/8.60%. The current market value corresponding to 2024-2026 PE is 16.47/13.64/12.56 times, respectively. The company has considerable room for medium- to long-term growth and maintains an “gain” rating.

Risk warning: 1) Industry regulations are getting stricter; 2) The development of the domestic futures market falls short of expectations.