Introduction to this report:

The high year-on-year increase in the company's investment income in the first three quarters drove performance growth. Improved market liquidity is beneficial to the performance and valuation of the brokerage sector. Relying on shareholder backgrounds, the company actively improves quality and efficiency and builds a first-class investment bank, which is expected to boost valuation.

Key points of investment:

Maintain the “overholding” rating and maintain the target price of 21.09 yuan/share, corresponding to 19.28 x PE and 1.60 xPb.

The company's revenue/net profit for the first three quarters of 2024 was 14.279/7.15 billion yuan, -3.98%/11.68% year over year; the weighted average ROE was +0.30pct year on year to 6.12%, and the performance was slightly better than expected. The profit forecast was raised to 1.09/1.18/1.24 for 24-26 (1.03/1.13/1.23 yuan before adjustment); the target price was maintained at 21.09 yuan/share, corresponding to 19.28xPe and 1.60xPb.

In the first three quarters, the company actively grasped investment opportunities in the bond market, and the year-on-year increase in investment income drove performance growth. The company's net income from investment business in the first three quarters was +41.37% to 8.288 billion yuan, contributing 342.77% of the adjusted revenue (operating income - other business expenses) increase, which was the main reason for the increase in performance. The company continues to strengthen the allocation of major asset classes, actively grasp bond market conditions, and accurately seize swing trading opportunities during the year with fixed income directional investments, achieving a return on investment +0.43pct to 2.26% year over year, boosting investment returns. At the same time, the company continues to enrich and optimize fixed income neutral strategies to improve the stability of earnings. 2024Q3's investment income was 2.402 billion yuan, -7.28% month-on-month, and the investment performance was relatively steady.

Improved market liquidity is beneficial to the performance and valuation of the brokerage sector. Relying on shareholder backgrounds, the company actively improves quality and efficiency and builds a first-class investment bank, which is expected to boost valuation. 1) Since September 24, policies have continued to be implemented to promote continuous improvement in market liquidity, which is beneficial to the performance and valuation of brokerage stocks. 2) Relying on the background of shareholders, the company is expected to build a first-class investment bank, which will help boost valuation.

On the one hand, the company continues to do a good job of improving quality and efficiency and market management in accordance with requirements such as the “Report on the High Quality Development of Central Enterprises (2022)”. On the other hand, the company is the only large leading brokerage firm under the State Assets Administration Commission. Along with the continuous advancement of supply-side reforms in the industry, the company will build a first-class investment bank with shareholders' support. The background of the China Merchants Group helps the company to exert financial collaboration and industry-finance synergy, do a good job in attracting customers, providing comprehensive financial products and services, and linking industrial resources, and serve new productivity and residents' wealth management needs.

Catalyst: Supply-side reforms in the industry continue to advance.

Risk warning: The bond market fluctuates.