Matters:

Xiangcai Co., Ltd. released its report for the third quarter of 2023. It achieved total operating income of 1.55 billion yuan (YoY -16.5%) and net profit of 0.15 billion yuan (YoY -2.9%) for the first three quarters.

Total operating income of 0.46 billion yuan (YoY -19.5% /QoQ -9.6%) and net profit to mother of 0.07 billion yuan (YoY +437.6% /QoQ +517.7%) was achieved in the third quarter.

Commentary:

Securities sector: Asset-light businesses are under pressure, and self-employment returns have increased. 1) Asset-light business: net revenue from fees and commissions from Q1 to Q3 was 0.41 billion yuan (YoY -25.9%), Q3 was 0.135 billion yuan (YoY -32.9% /QoQ +2.6%). Equity financing continues to be tightened. According to Wind statistics, the equity underwriting scale of Xiangcai Securities from Q1 to Q3 was 0 billion yuan, and the debt underwriting scale was 5.686 billion yuan (all corporate bonds). Trading sentiment was sluggish in the third quarter, with an average daily A-share turnover of only 610.1 billion yuan from 7/1 to 9/23. After the 924 New Deal, investors' sentiment picked up, and the desire for capital to enter the market was strong, driving the average daily A-share turnover in Q3 to 677.6 billion yuan/YOY -15.1%, and the decline narrowed somewhat. In terms of asset management business, the net non-cargo asset value of Xiangcai Fund is 6.315 billion yuan/YOY +40.7%. 2) Heavy capital business: Q1 to Q3 self-operated business revenue of 0.397 billion yuan (YoY +59.7%), of which Q3 was 0.17 billion yuan (YoY +291.5% /+0.126 billion yuan, QoQ +415.1% /+0.137 billion yuan). The equity market recovered after 924, and the company's average self-operating yield in a single quarter reached 2.21% (YOY+1.61pct/QoQ+1.69pct). Credit business was steady, with net interest income of 0.344 billion yuan (YoY -4.9%) from Q1 to Q3 and 0.114 billion yuan (YoY -3.7% /QoQ +2.2%) in Q3.

Industrial sector: Since this year, the company has taken more measures to further implement cost reduction and efficiency, and continues to promote the disposal of inefficient assets and revitalize high-quality assets. Q1-Q3 revenue of 0.411 billion yuan (YoY -19.1%), most of which was revenue from trade operations. The gross profit was low and had little impact on overall net profit.

Investment proposal: In the first three quarters of 2024, the wholly-owned subsidiary Xiangcai Securities operated steadily, achieving net profit of 0.292 billion yuan, an increase of 26.10% over the previous year. We slightly raised our profit forecast. We expect the 2024/2025/2026 EPS of Xiangcai Co., Ltd. to be 0.07/0.08/0.09 yuan (previous value was 0.05/0.06/0.08 yuan) and 4.19/4.26/4.33 yuan for BPS, respectively. The PB corresponding to the current stock price is 1.80/1.78/1.75 times, respectively, and the weighted average ROE is 1.55%/1.82%/2.03%, respectively. Considering the significant advantages of the company's “Internet+Brokerage” model, it is expected to obtain more high-quality business resources after introducing state-owned shareholders, we gave a PB valuation of 2.2 times the 2025 performance, with a target price of 9.37 yuan. Maintain a “Recommended” rating.

Risk warning: Risk of major litigation matters, risk of equity pledges, and the effectiveness of strategic cooperation falls short of expectations.