Introduction to this report:

The profit performance is consistent with the rapid performance report. The company continues to transform into a medium to large brokerage firm, and the acquisition of some shares in Guodu Securities will open a new chapter, which is worth looking forward to.

Key points of investment:

Maintain the “gain” rating and raise the target price to 14.49 yuan, corresponding to 2.0xPb in 2024.

The company's revenue/net profit for the first three quarters of 2024 was 11.9/1.26 billion yuan, -5.8%/-4.9%, of which net profit for the Q3 quarter was 0.48 billion yuan, +14.7% YoY/+42.6%, in line with the performance report; the weighted average ROE was -0.42pct YoY to 4.59%. The implementation of the company's acquisition of some shares in Guodu Securities has been accelerated. The merger and acquisition is preparing for long-term development, and the merger is expected to bear fruit. Considering the strong market boost since 9/24, the 24-26 profit forecast was slightly raised to 0.49/0.52/0.56 (previous value was 0.48/0.51/0.55 yuan), and the target price was raised to 14.49 yuan, corresponding to 2.0xPb in 2024, maintaining the “gain” rating.

The decline in investment banking business dragged down performance, and improved investment in a single quarter supported performance. 1) Judging from the factors of the decline in adjusted revenue (operating income - other business costs), the 34% year-on-year decline in investment bank revenue was the main reason, contributing 56% of the decline in performance. However, the main reason for the decline in investment banking business was the policy of tightening the pace of equity financing, the company's equity investment bank underwriting scale in the first three quarters was 0.654 billion yuan (according to the issuance date statistics), down 93% from the same period last year; 2) The improvement in investment income was an important support for steady performance. The company's investment revenue in the first three quarters reached 1.04 billion yuan, +15.0% year over year, of which 0.46 billion yuan in Q3 was 0.46 billion yuan, and the return on investment is expected to be boosted by an improvement in the bond market.

The acquisition of some shares in Guodu Securities is progressing at an accelerated pace, opening a new chapter of long-term goals. The company clearly relies on the “14th Five-Year Plan” and long-term goals for 2030, and strives to achieve the goal of “fully entering the top 20 and striving to sprint to the top 15” at the end of the “14th Five-Year Plan” period, and accelerate the transformation to medium to large brokerage firms. Since 2024, the company plans to acquire a total of 34.3% of Guodu Securities through multiple rounds of transfers. On July 16, the application for the company to become a major shareholder of Guodu Securities was accepted by the Securities Regulatory Commission. If integration is carried out in the future, it is expected that the highlight of the collaboration will be regional complementarity and Sino-European fund equity, and more importantly, to achieve a leap forward in comprehensive strength and prepare for long-term development.

Catalyst: Advance the acquisition of some shares in Guodu Securities

Risk warning: The equity market fluctuates greatly; mergers and acquisitions are progressing less than expected.