Description of the event

Guotai Junan released its 2024 three-quarter report. During the reporting period, it achieved operating income of 29.001 billion yuan, +7.3% year over year, net profit to mother of 9.523 billion yuan, +10.4% year on year, and a weighted average return on net assets of +0.35pct to 5.97% year over year.

Incident comments

Profit in a single quarter increased year-on-year in the third quarter, and self-employment was the main driver of performance growth. 1) Guotai Junan's revenue and net profit for the first three quarters of 2024 were 29.001 and 9.523 billion yuan, respectively, +7.3% and +10.4% year over year, and weighted ROE was 5.97%, +0.35pct year on year. By business line, brokerage, investment banking, asset management, interest, and proprietary income for the first three quarters were 44.54, 17.98, 2.862, 1.567, 10.925 billion yuan, respectively. +36.2%

Q3 Proprietary income was +123.0% year-on-year to 5.862 billion yuan, which was the main driver of performance growth; 2) The overall recovery of the 2024Q3 market, the Wandequan A Index rose 1.5%, while the 2024Q3 revenue and net profit to mother for the single quarter were 11.931 and 4.507 billion yuan, +37.2%, respectively.

The share of brokerage business remained steady, while the share of credit business declined. The cumulative daily turnover for the first three quarters of 2024 and Q3 was 797.3 and 677.5 billion yuan respectively, -10.6% and -15.1% year-on-year respectively. Guojun's brokerage business revenue for the first three quarters and the Q3 quarter year-on-year growth rates were -12.7% and -14.0%, respectively. The company's growth rate is similar to the market decline. The company's brokerage business market share and commission rate are expected to remain steady. At the end of Q3, the company estimated that the market share of financing capital was 5.81%, -0.05pct year on year, with an overall decline.

The size of equity declined year on year, and the scale of bond underwriting continued to grow. In the first three quarters of 2024, the company's equity size was 8.976 billion yuan, -82.9% year on year, estimated market share was 4.5%, -1.29 pct year on year; bond underwriting scale was 789.04 billion yuan, +5.6% year on year, estimated market share was 8.0%, +0.36 pct year on year.

Q3 Asset management revenue is under pressure. By the end of the first half of 2024, Huaan Fund's management scale was 739.5 billion yuan, +8.8% year-on-year, achieving net profit of 0.519 billion yuan, contributing 4.98% to the Group's net profit, or +0.60pct year-on-year. The share and size of 2024Q3 emerging stocks & hybrid funds were -25.3% and +13.5%, respectively. The net revenue from the company's asset management business in a single quarter was 0.941 billion, -9.1% and -6.2%, respectively. This was mainly due to the impact of the high base.

Proprietary businesses all achieved high year-on-month growth, and the return on investment increased. 2024Q3's proprietary investment in a single quarter reached 5.862 billion yuan, +123.0% and +121.3%, respectively. As of the end of the third quarter of 2024, the company's financial assets were 435.292 billion yuan, -7.1% compared with the end of the previous year. The estimated return on financial asset investment was 2.52%, +0.64pct year on year.

In the medium to long term, we are optimistic about the company's continued expansion as an industry leader in the field of institutional brokerage and trading business, relying on resource endowments to gradually develop derivatives and supporting businesses. The net profit attributable to the company in 2024-2025 is estimated to be 98.44 billion yuan and 11.913 billion yuan respectively, corresponding PE is 16.88 and 13.95 times, respectively, and corresponding PB is 1.06 and 0.98 times, respectively, giving a purchase rating.

Risk warning

1. A sharp correction in the equity market;

2. Regulatory policies have been tightened.