Matters:

CICC released its 2024 three-quarter report, with operating income of 13.449 billion yuan (YoY -23.0%) and net profit to mother of 2.858 billion yuan (YoY -38.0%). Total assets of 655.4 billion yuan (+5.0% compared to the end of the previous year), net assets of 108.8 billion yuan (+4.0% compared to the end of the previous year), EPS (diluted) 0.59 yuan/share, and BVPS 18.52 yuan/share.

Ping An's point of view:

Performance continues to be under pressure, and improved self-operating performance is driving the decline in performance to narrow. 24Q3 had revenue of 4.54 billion yuan (QoQ -10%, YoY -10%) and net profit of 0.63 billion yuan (QoQ -36%, YoY -40%). Exchange losses due to exchange rate fluctuations were the main drag on month-on-month performance. Second, revenue pressure from the Q3 brokerage and credit business was also strong, but self-operating income improved markedly in 24Q3. Net income from brokers/investment banks/asset management/proprietary operations in the first three quarters was -27%/-21%/-12%/+7%, respectively, net interest income was -1.19 billion yuan (vs. -0.83 billion yuan in the same period of the previous year), and broker/investment banking/asset management/self-employment/interest net income accounted for 19%/15%/6%/55%/-9%, respectively. 24Q1-Q3 management costs 10.26 billion yuan (YoY -15%), management rate 76.3% (YoY+7.0pct); credit impairment loss of 7.27 million yuan (credit impairment turned back 2.51 million yuan in the same period last year). The leverage ratio is 5.08 times (YoY-0.15 times, -0.11 times compared to the end of the previous year, QoQ+0.18 times), and the annualized ROE is 3.6% (YoY-2.5pct).

The asset-light business continues to be under pressure. According to Wind, the average daily turnover of A-shares in the Shanghai and Shenzhen markets in the first three quarters was 921 billion yuan (YoY -9%), and CICC's net brokerage revenue fell even deeper year on year. It is expected to be mainly dragged down by declining commission rates and declining consignment revenue. In 24Q3, CICC's underwriting scale improved month-on-month, but was still under year-over-year pressure. In the first three quarters, the IPO underwriting scale was 3 billion yuan (YoY -89%), additional issuance and allotment of shares was 15.7 billion yuan (YoY -80%), and bond underwriting was 844 billion yuan (YoY +7%).

The scale of financial investment increased sequentially. Self-operation at the end of 24Q3 was 351.2 billion yuan (YoY -2%, -0.4% compared to the end of the previous year, and +6.7% compared to 24H1). Among them, 75.7 billion yuan was invested in other debt instruments (+15% compared to the end of the previous year), 1.8 billion yuan was invested in other equity instruments (vs. no position at the end of the previous year, +4% compared to 24H1), and 275.4 billion yuan in transactional financial assets (-3% compared to the end of the previous year).

Investment advice: The company's institutional business advantages and high-net-worth customer resources create differentiated competitiveness, leading professional capabilities in investment banking and trading. However, considering the pressure on the company's main business revenue for the first three quarters and the relative rigidity of the expenditure side, the company's net profit forecast for 24/25/26 was lowered to 4.18/4.53/4.97 billion yuan (the original forecast was 4.55/4.94/5.41 billion yuan), corresponding to a year-on-year change of -32%/+8%/+10%. The current stock price corresponds to about 1.9 times the 2024 PB. Capital market reforms focus on high-quality development. The company has outstanding professional strength, will still benefit in the long term, and maintain a “recommended” rating.

Risk warning: 1) The progress of capital market reforms fell short of expectations; 2) monetary policy tightened beyond expectations; 3) The macroeconomic downturn affected global risk appetite. 4) Regulatory and administrative penalties have exceeded expectations.