Incident: CITIC Securities announced its 2023 annual report, which is slightly better than the quick performance report. Achieved annual revenue of 60.07 billion yuan/yoy -7.7%; realized net profit of 19.72 billion yuan/yoy -7.5%, of which 4Q23 profit was 3.31 billion /yoy -30% /qoq -35%; and a weighted ROE of 7.81% /yoy-0.86pct in 2023.
The revenue structure is balanced, showing performance resilience under a high base. 1) The company's profit declined by only a single digit under a relatively high base, showing performance resilience (in terms of base, net profit of the brokerage sector yoy -34% vs. CITIC Securities yoy -8% in 2022), mainly supported by the investment business. Revenue split:
In 2023, brokerage, investment banking, asset management, net interest and net investment income were RMB 102.2, 62.9, 98.5, 40.3, and 22.38 billion yuan, respectively, accounting for 18.8%, 11.6%, 18.2%, 7.4%, and 41.3%; year-on-year ratio, -8%, -27%, -10%, -31%, and +21%, respectively. 2) Four-quarter profit yoy -30%, mainly due to the sharp tightening of the scale of equity financing in the market and year-on-year pressure on stock index performance, which dragged down single-quarter results; 3) Continued improvement in international market competitiveness, and the subsidiary CITIC Securities International achieved net profit of 250 million US dollars/yoy +97% in 23 years.
The return on major investment businesses has been rising steadily, and private equity subsidiaries have performed well. Investment assets at the end of the period fell slightly to 748.5 billion yuan/yoy +17%, including trading stocks of 220,9 billion/yoy +17%, transactional bonds of 173.1 billion/yoy +26%, end-of-period investment leverage of 2.78x/yoy+0.27x; the equity derivatives business continued to deepen product innovation, and the nominal principal amount of equity derivatives at the end of the period was 681.4 billion yuan/yoy +34%; the estimated return on investment in 2023 was 3.23% /yoy+0.3pct. The profits of private equity subsidiaries increased significantly. In 23, China CITIC Securities Investment (alternative investment subsidiary, science and technology innovation board and investor) and Jinshi Investment (private equity subsidiary) achieved net profit of 11.4 billion yuan and 1.11 billion yuan respectively, -3% and +81%, respectively.
Consignment revenue increased slightly against the market, brokerage business revenue remained number one in the industry, and wealth management transformation deepened. The net income of securities brokerage in '23 was 9.11 billion yuan/yoy -10%, and the brokerage business revenue ranking remained number one in the industry.
Wealth management transformation deepened: The company's consignment revenue at the end of the period was 1.69 billion yuan/yoy +1%, which was still increasing despite market weakness; non-monetary public fund holdings amounted to 190.2 billion yuan, ranking first in the industry. The number of customers continues to grow: the total number of customers reached 14.2 million households/ a year-on-year increase of more than 1 million.
The investment banking business is under pressure in stages, but the evolution of the pattern is actually conducive to consolidating the leading position. According to statistics from the release date, the underwriting scale of the company's A-share IPO in '23 was 50 billion /yoy-60%, and the refinancing underwriting scale was 1408 billion /yoy-28%. However, the company continued to lead the market share. In 23, the A-share IPO share was 14.0%, the A-share refinancing share was 29.3%, and the bond underwriting share was 14.1%, all ranking first in the industry; in terms of project reserves, as of 3/26, the number of IPOs and refinancing companies reviewed by 82 and 60 companies, far ahead of the second place (52 and 34, respectively). In the context of strict issuance and listing regulations, the “gatekeeper” responsibilities of intermediaries will be further consolidated to benefit leading brokerage firms with outstanding professional capabilities and sound compliance and risk control. The company's share is expected to increase further in the long run.
Huaxia Fund's profit declined slightly, and ETFs drove a 16% increase in non-commodity AUM; asset management subsidiaries opened, and the public offering market continued to expand. In '23, Huaxia Fund (holding 62.2%) achieved revenue of 7.33 billion yuan/yoy -2%, net profit of 2.01 billion yuan/yoy -7%, contributing about 6.3% of the group's profit. At the end of the period, Huaxia Fund's non-cargo AUM was 884.3 billion/ +16% year over year, ranking second in the industry; among them, the size of non-commodity ETFs increased by 118.6 billion yuan/106% of the increase in contribution. CITIC Asset Management opened in November 23, and various tasks are progressing steadily.
Investment analysis opinion: We judge that the important marginal changes in the securities industry in the future are the evolution of the pattern, speeding up the construction of first-class investment banks, and supply-side reforms continuing to accelerate; the company continues to benefit as an industry leader and maintains a “highly recommended” rating. The estimated net profit of CITIC Securities in 2024-2026E will be RMB 201 billion, RMB 21.5 billion, and RMB 23.5 billion, respectively, +2%, +7%, and +9% year-on-year. The 3/26 closing price corresponds to 24-26E dynamic PB 1.1, 1.04, and 0.99x, respectively, and dynamic PE 14.9, 13.9, and 12.7x, respectively.
Risk warning: The downward pressure on the economy is increasing; the activity of stock transactions in the market has declined sharply; the process of residents' capital entering the market has slowed down.