Matters:

Fangzheng Securities released its 2024 three-quarter report. Total revenue after excluding other business revenue: 5.4 billion yuan, -4% year over year, 1.7 billion yuan in a single quarter, and -0.03 billion yuan month-on-month. Net profit to mother: 1.97 billion yuan, +1.5% year over year, 0.61 billion yuan in a single quarter, +0.05 billion yuan month-on-month.

Commentary:

Proprietary returns have not changed much. Refer to current market changes. Proprietary business may be dominated by fixed income assets. The total net revenue from the company's heavy capital business was 2.5 billion yuan, or 0.77 billion yuan in a single quarter, +0.023 billion yuan over the previous quarter. The net return on the heavy capital business (non-annualized) was 1.7%, or 0.5% in a single quarter, which was flat from month to month. Let's break it down:

1) The total revenue from the company's own business (change in fair value+net income from investment - net income from joint ventures) was 1.62 billion yuan, or 0.42 billion yuan in a single quarter, -0.04 billion yuan compared to the previous quarter. The yield from self-employment in a single quarter was 0.7%, +0.1pct month-on-month. In comparison, the average yield of active equity funds in a single quarter was +11.93%, +14.54pct month-on-month, and +18.86pct year-on-year. The average yield of pure debt funds was +0.23%. -0.8 pct month-on-month, -0.32 pct year over year.

2) Credit business: The company's interest income was 3.1 billion yuan, 1.03 billion yuan in a single quarter, +0.018 billion yuan compared to the previous quarter.

The scale of the two finance business was 30 billion yuan, -0.08 billion yuan month-on-month. The market share of the two finance loans was 2.08%, +0.14pct year over year.

3) Pledging business: The balance of financial assets purchased and resold was 8.6 billion yuan, +0.35 billion yuan compared to the previous month.

ROE increased slightly month-on-month, mainly benefiting from a significant increase in net profit margin, and a certain decline in asset turnover over year. The company's ROE during the reporting period was 4.2%, -0.1 pct year over year. ROE in a single quarter was 1.3%, +0.1pct month-on-month. Let's take a look at DuPont's split:

1) The company's financial leverage ratio at the end of the reporting period (total assets excluding customer funds) was: 3.9 times, +0.05 times the previous year, and -0.1 times the previous month.

2) The company's asset turnover ratio during the reporting period (total assets excluding customer funds, total revenue excluding other business revenue) was 3%, -0.3 pct year over year. The asset turnover ratio for the single quarter was 0.9%, which was the same month on month.

3) The company's net profit margin for the reporting period was 36.3%, +2pct year on year. The net profit margin for the single quarter was 36.1%, +3.3pct month-on-month.

The decline in brokerage revenue was superior to the market. Brokerage revenue was 2.3 billion yuan, or 0.7 billion yuan in a single quarter, -10.9% month-on-month. The average daily turnover during the comparison period was 678.74 billion yuan, or -18.4% month-on-month.

Investment banking business revenue improved month-on-month. Investment banking revenue was 0.15 billion yuan, or 0.07 billion yuan in a single quarter, +0.03 billion yuan month-on-month. Looking at market sentiment during the comparison period, the IPO underwriting scale for the third quarter of 2024 was 15.374 billion yuan, +73.25%, the refinancing underwriting scale was 46.294 billion yuan, -14.23% month-on-month, and the corporate bond+corporate bond underwriting scale was 1042.446 billion yuan, +4.67% month-on-month.

Asset management revenue declined month-on-month. Asset management revenue was 0.18 billion yuan, or 0.05 billion yuan in a single quarter, -0.01 billion yuan month-on-month.

Looking at the balance sheet, after excluding customer capital, the company's total assets were 181.5 billion yuan, +10.58 billion yuan year on year, and net assets: 47 billion yuan, +2.14 billion yuan year on year. The company's interest-bearing debt balance was 106 billion yuan, -6.93 billion yuan month-on-month. The debt cost ratio for the single quarter was 0.6%, +0 pct month-on-month, and -0.2 pct year over year.

Investment advice: The performance is in line with expectations, the fixed income self-operated business accounts for a relatively high proportion, and the stability is relatively higher than that of the industry.

The decline in brokerage business was better than that of the industry, and was generally in line with expectations. We expect the company's 2024/2025/2026 EPS to be 0.31/0.35/0.39 yuan and BPS to be 5.78/6.11/6.48 yuan respectively. The PB corresponding to the current stock price is 1.50/1.42/1.34 times, respectively, and the ROE is 5.49%/5.81%/6.13%, respectively. Considering the rapid recovery of short-term valuations in the brokerage sector, we gave the company a PB valuation forecast of 1.7 times in 2025, corresponding to a target price of 10.38 yuan, maintaining a “recommended” rating.

Risk warning: risk of shareholder changes, increasing downward pressure on the economy, reduction of capital holdings in the North, etc.