China Merchants Securities released its report for the third quarter of 2024. In the first three quarters of 2024, the company achieved operating income of 14.279 billion yuan, a slight decrease of 3.98% year on year; realized net profit of 7.15 billion yuan, up 11.68% year on year; ROE was 6.12%, up 0.3 pct year on year; EPS was 0.77 yuan/share, up 11.59% year on year. The rise in the company's performance was mainly due to policies boosted market confidence, the stock market showed a rebound trend, the increase in trading activity had an impact, and proprietary business became a key factor in performance growth. With the gradual improvement of the market environment and continued policy support, the company's performance is expected to improve.

The capital market is picking up, the tripartite customer flow is increasing, and customer capital is growing. In the first three quarters of 2024, the company achieved net brokerage fee revenue of 3.673 billion yuan, a year-on-year decrease of 14.15%. The company's monetary capital at the end of the period was 136.618 billion yuan, an increase of 24% over the previous year, mainly due to the increase in customer capital. The main reason behind the increase in capital is that the company increased its channel flow through the Internet and other channels to achieve customer growth. The flexibility was particularly evident in the third quarter.

Proprietary business revenue increased rapidly, becoming the main driving force for performance growth. In the first three quarters of 2024, the company achieved investment income (including income from changes in fair value) of 7.166 billion yuan, an increase of 51.88% year on year; the size of the company's financial assets was 371.5 billion yuan, up 8.81% year on year, mainly due to the implementation of a series of capital market policies and a recovery in the trading market, investment income and fair value change income increased dramatically.

Asset management and investment banking businesses are under pressure, and the scale of debt commitments has increased. In the first three quarters of 2024, the scale of market bond financing continued to increase compared to the same period last year, but the overall scale of equity financing declined markedly year on year. The company's investment banking business revenue was 0.419 billion yuan, down 43.82% year on year. In terms of equity financing, the company's equity underwriting amount was 5.908 billion yuan, down 60% year on year, ranking 9th in the industry; 5 IPO reserve projects, ranking 5th in the industry; and the scale of bond financing was about 289.7 billion yuan, up 30.8% year on year, increasing market share. Asset management business performance declined, and management scale increased steadily. In the first three quarters of 2024, the company's net revenue from asset management fees was 0.502 billion yuan, a year-on-year decrease of 8.49%.

Investment advice: Based on the impact of continued market policy support and increased capital market trading activity on the securities business, we raised the company's profit forecasts for 2024, 2025 and 2026 by 4.6%, 2.3%, and 1.2% respectively. We forecast that the company's net profit due to 2024-2026 will be 9.372 billion yuan, 10.033 billion yuan, and 11.088 billion yuan, respectively, an increase of 6.9%/7.1%/10.5% over the previous year. The PE corresponding to the current stock price is 13.6/12.7/11.5x, PB is 1.0/1.0/0.9x. In the face of improved market activity, the company's core business advantage continued to be maintained, showing good development resilience, and maintaining the company's “superior to the market” rating.

Risk warning: Market decline brings uncertainty, policy risks, etc. to brokerage performance and valuation repair.