1. Events

Recently, the company released its 2019 annual report.

2. Our analysis and judgment

1) good performance, net profit increased by 37.86% compared with the same period last year.

In 2019, the company achieved an operating income of 24.593 billion yuan, an increase of 60.98% over the same period last year, and a net profit of 5.735 billion yuan, an increase of 37.86% over the same period last year. The basic EPS was 0.24 yuan, an increase of 26.32% over the same period last year, and the weighted average ROE7.41%, increased by 1.22% over the same period last year.

2) the income from proprietary investment increased significantly, and the institutional services and trading business performed well. In 2019, the company's proprietary business income reached 5.608 billion yuan, an increase of 45.25% over the same period last year, mainly due to an increase of 45.35% to 5.709 billion yuan from the same period last year. In 2019, the company's fixed income trading business accurately grasped the market trend, the rate of return on investment exceeded the average of open-end pure debt funds by 11.1 percentage points, and its profit contribution reached another all-time high; the company optimized the asset allocation of equity investment and strengthened product creation, steadily improving the overall profit level, and the rate of return on investment exceeded the A-share market index and the average rate of return of comparable public funds. The income from FICC and equity investment transactions improved, and the company's prime broker services, derivatives business, research and consulting business developed steadily. In 2019, the company's institutional services and trading business reached 13.399 billion yuan, an increase of 142.65% over the same period last year.

3) IPO underwriting made a breakthrough, and the growth rate of investment bank income became positive.

2019 the net income of the company's investment banking business was 1.162 billion yuan, an increase of 32.68% over the same period last year.

In 2019, the underwriting scale of the company's investment banking business reached 164.924 billion yuan, an increase of 36.77% over the same period last year. Among them, the size of the company's underwriting bonds reached 149.701 billion yuan, an increase of 52.39% over the same period last year; in terms of equity underwriting, the company seized market opportunities, fully participated in the construction of Kechuang board, and continued to increase the project reserve. In 2019, the company completed 13 equity financing projects, with an equity underwriting scale of 13.879 billion yuan, a decrease of 34.82% over the same period last year, including 3 IPO projects with an underwriting scale of 3.134 billion yuan, breaking the zero underwriting situation of IPO in 2018. In 2019, 6 M & A projects were approved, and the industry ranking rose 13 to 5.

4) active trading contributed to the improvement of brokerage business income, and the contraction of pledge scale affected the growth of net interest income. The recovery of market trading activity affected the company's brokerage business net income of 3.797 billion yuan in 2019, an increase of 16.39% over the same period last year. The company will strengthen the application of science and technology, increase the introduction and activation of customer assets, and accelerate the transformation of wealth management. At the end of 2019, the custodian assets of the company's securities customers reached 3.2 trillion yuan, an increase of 33.67% over the same period last year, and the market share slightly increased by 0.05 percentage points to 7.18% over the same period last year. The company has nearly 7.271 million retail customers, an increase of 11.04 percent over the same period last year, and 710800 new accounts, an increase of 118.71 percent over the same period last year. In 2019, the big winner APP launched more than 120 new features and experience optimization, with 1.1211 million monthly active users, an increase of 61.13% over the same period last year.

In 2019, the company realized 3.22 billion yuan in net interest income, down 4.09% from the same period last year. The company strengthened the risk management of stock pledge business, controlled scale, adjusted structure, and promoted business. At the end of 2019, the financing balance of stock pledge business was 24.488 billion yuan, down 43.94% from the same period last year. In terms of the financing and financing business, benefiting from the increase in market risk appetite, the company's margin trading balance was 51.71 billion yuan, an increase of 21.01% over the same period last year, and its market share was 5.05%, a slight decrease of 0.60% over the same period last year.

5) the income of asset management business is growing against the trend, and the quality effect of active management transformation gradually shows that the company achieved 1.29 billion yuan in net income from asset management and fund management business in 2019, an increase of 7.59% over the same period last year. The company's asset management business revolves around professional reform and active management capacity to enhance the transformation, enhance the ability to invest in research and strengthen internal coordination, laying the foundation for building a "full-asset characteristic merchant, multi-strategy boutique". According to data from the Fund Industry Association, in 2019, the average monthly size of assets under active management was 135.642 billion yuan, down 1.42% from the same period last year, and the industry ranked up 1 to 7; actively managed assets accounted for 86%, an increase of 11 percentage points over the same period last year. The quality effect of active management transformation is gradually emerging.

3. Investment suggestion

The performance of the company's investment business is eye-catching, the income of investment banking and brokerage business has improved, and the qualitative effect of active management transformation of asset management has gradually emerged. As a comprehensive, full-license large securities firm, the company is expected to benefit from the deepening reform of the capital market, the release of dividends and the building of aircraft carrier-level securities firms. We are optimistic about the company's future development prospects, combined with the company's fundamentals and valuation, maintain the "recommended" rating, 2020max 2021 EPS 0.28pm 0.32 yuan, corresponding to PE 15.93X/13.94X.

4. Risk hint

COVID-19 epidemic on the macroeconomic impact of the risk of greater-than-expected, market fluctuations on the risk of a great impact on business.