Matters:

Guotai Junan released its 2024 three-quarter report. Total revenue after excluding other business revenue: 22.6 billion yuan, +3.2% year over year, 9.4 billion yuan in a single quarter, +2.68 billion yuan month-on-month. Net profit to mother: 9.52 billion yuan, +10.4% year over year, 4.51 billion yuan in a single quarter, +1.98 billion yuan month-on-month. +1.62 billion yuan year over year.

Commentary:

Proprietary returns significantly exceeded expectations, leading to a marked increase in performance. The total net revenue from the company's heavy capital business was 12.28 billion yuan, or 6.3 billion yuan in a single quarter, +3.054 billion yuan compared to the previous quarter. The net return on the heavy capital business (non-annualized) was 2.1%, 1.1% in a single quarter, +0.5pct month-on-month, and +0.7pct year-on-year. 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 10.71 billion yuan, or 5.78 billion yuan in a single quarter, +3.22 billion yuan compared to the previous quarter. The yield from self-employment in a single quarter was 1.6%, +0.9pct month-on-month and +0.9pct year-on-year. 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 10.97 billion yuan, 3.55 billion yuan in a single quarter, -0.196 billion yuan month-on-month. The scale of the two finance business was 83.1 billion yuan, +0.2 billion yuan month-on-month. The market share of Liangfinance was 5.77%, +0.15pct year-on-year.

3) Pledging business: The balance of financial assets purchased and resold was $51.3 billion, -11.3 billion yuan month-on-month.

The month-on-month revenue of the light capital business is close to market fluctuations.

1) Brokerage revenue was 4.45 billion yuan, or 1.38 billion yuan in a single quarter, -12.9% month-on-month and -14% year over year.

The average daily turnover during the comparison period was 678.74 billion yuan, -18.4% month-on-month.

2) Investment banking revenue was 1.8 billion yuan, or 0.63 billion yuan in a single quarter, +0.11 billion yuan month-on-month, and -0.48 billion yuan year-on-year. 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.

3) Asset management revenue was 2.86 billion yuan, 0.94 billion yuan in a single quarter, -0.06 billion yuan month-on-month, and -0.09 billion yuan year-on-year. The return on heavy capital businesses increased month-on-month. Looking at the split industry, the return on equity assets narrowed month-on-month, and the yield on bond assets stabilized month-on-month.

The company's ROE during the reporting period was 5.7%, +0.5pct year-on-year. ROE in a single quarter was 2.7%, +1.2pct month-on-month, and +1pct year-on-year. Looking at DuPont's breakdown:

1) The company's financial leverage ratio at the end of the reporting period (total assets excluding customer funds) was 4.46 times, +0.19 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%, the same year on year. The asset turnover ratio for the single quarter was 1.3%, +0.4 pct month-on-month and +0.3 pct year-on-year.

3) Excluding other business revenue, the company's net profit margin for the reporting period was 42.1%, +2.7 pct year on year, and 48% net profit margin in a single quarter, +10.4 pct month-on-month and +6.5 pct year over year.

Looking at the balance sheet, after excluding customer capital, the company's total assets were 742.8 billion yuan, +33.33 billion yuan year on year, and net assets: 166.5 billion yuan, +0.57 billion yuan year on year. The leverage ratio was 4.46x, +0.19x year over year. The company's interest-bearing debt balance was 334.6 billion yuan, -19.95 billion yuan month-on-month. The debt cost ratio for the single quarter was 0.9%, flat month-on-month, -0.1 pct year on year.

Investment advice: The company's three-quarter report exceeded expectations, and there was no shortage of highlights. Optimistic about the company's business development in the context of the construction of the Shanghai International Financial Center, we adjusted our profit forecast. The company's 2024/2025/2026 EPS is 1.38/1.46/1.62 yuan (the value before 2024/2025/2026 was 1.30/1.42/1.57 yuan), and the BPS is 17.40/18.16/18.91 yuan respectively. The corresponding PB of the current stock price is 1.14/1.09/1.05 times, respectively, and the ROE is 7.95% /8.06 %/ 8.55%. Referring to comparable company valuations, and considering that short-term valuations in the brokerage industry are recovering faster, we gave Guotai Junan 1.3 times PB valuation forecast in 2025, corresponding to a target price of 23.61 yuan, maintaining a “recommended” rating.

Risk warning: Market trading volume declined; risk appetite declined; capital market innovation fell short of expectations; real economy recovery fell short of expectations.