Incident: Capital Securities's 2023 quarterly report shows that the company achieved operating income of 434 million yuan in 2023Q1, +40.96% year on year; net profit attributable to shareholders of listed companies was 176 million yuan, a sharp increase of 110.91% over the previous year.

Comment:

Proprietary business revenue has rebounded sharply, and fixed income investment strength guarantees performance. Thanks to improved capital market performance in the first quarter, the company's proprietary business achieved revenue of 265 million yuan in Q1 2023, an increase of 668.12% over the previous year, accounting for 61.02% of revenue, an increase of 49.82 pct. The revenue share returned to the level of previous years, and once again became the company's largest revenue business. The fixed income business accounts for a relatively large share of the company's own business, and is highly competitive in terms of the profitability of proprietary investment, quantitative investment returns, and institutional business customer service capabilities. The company's fixed income business continues to maintain a good level of profitability and risk control. Against the backdrop of a sharp decline in revenue from the industry's proprietary business in 2022, the company's fixed income business revenue was 708 million yuan, +24.45% year on year, supporting the company's own business to maintain positive revenue. Under the 23Q1 market recovery trend, the fixed income business continued to contribute good performance to the company to help increase its share of self-operated business revenue.

Growth in debt undertakes investment industry performance, and brokerage business is superior to industry standards. In 23Q1, the company's investment banking business achieved net revenue of 29 million yuan, +63.43% year on year, accounting for 6.59% of revenue, a slight increase of 0.91 pct. According to data from Huashun, Capital Securities co-sponsored a total of 33 listings and underwrote 38 bonds in the first quarter, with a total underwriting amount of 8.345 billion yuan, a sharp increase of 111.91% over 3,938 billion yuan in the same period last year, which led to a rise in investment banking business revenue. In 23Q1, the company achieved net brokerage revenue of 58 million yuan, +1.23% over the same period last year, accounting for 18.47% of revenue, a decrease of 5.21pct. With both the Shanghai and Shenzhen market turnover and average daily stock base turnover falling in the first quarter of '23, the company continued to use fintech to empower brokerage business and promote the transformation of traditional brokerage business to wealth management. The company's brokerage revenue continued to rise steadily, better than the industry average of -16.71% compared to the same period last year.

The decline in net income from asset management may be affected by a decline in the scale of asset management. The net revenue of Capital Securities's asset management business in 23Q1 was 80 million yuan, -44.06% year-on-year, accounting for 18.42% of revenue, a decrease of 27.99pct.

Since 2022, the net worth scale of funds entrusted to the company's asset management business has increased rapidly. Asset management business management fees have increased dramatically in the same period last year, while data from the China Foundation Association shows that the total asset management scale of brokerage firms in 23Q1 was 5854309 billion yuan. Compared with -19.48% year on year, the company's asset management scale may also have declined, which in turn led to a decline in business revenue.

Profit forecasting and investment suggestions: In the context of improving market conditions, the company demonstrated its strong competitiveness in its own business, especially in the fixed income business, and the company's performance improved markedly.

We expect the 2023-2025 EPS to be 0.40/0.46/0.52 yuan respectively, corresponding to the 2023 PE of 32.89x, maintaining the “increase in holdings” rating.

Risk warning: Proprietary business performance falls short of expectations, asset management business scale expansion falls short of expectations, and regulatory policies are tightened.