Main points of investment:

Zhejiang Merchants Securities is a securities firm under Zhejiang state-owned assets, wealth management and investment banking business ranks in the upper and middle reaches of the industry, with strong performance growth. Zheshang Securities was listed on the Shanghai Stock Exchange in June 17, and the actual controller is SASAC of Zhejiang Province. 1) the ranking of Zheshang Securities Association rose rapidly in 2014-21, with a number of business levels rising to the middle and upper reaches of the industry, with total assets and net assets rising from 31st and 42nd in 2014 to 24th and 30th; revenue and net profit from 40th and 48th to 23rd; wealth management business and investment banking related indicators industry ranking improved rapidly. The company's performance growth is strong. The cagr of revenue and net profit in 14-21 years is 22.9% and 10.4% respectively, which is higher than that of industry 17.6pct and 5.4pct respectively. 2) since the company went public, the company issued 3.5 billion convertible bonds in 19 years and 2.8 billion in 21 years, and 7 billion convertible bonds in 22 years. The 8 billion increase plan in March 23 was approved by Zhejiang State-owned assets Supervision and Administration Commission (SASAC). After multi-channel capital replenishment, the company expanded significantly and ROE compensation was relatively fast. From 17 to 21, the company's net assets increased from 6.6 billion to 23.8 billion, cagr reached 29% (vs industry cagr reached 23%). ROE rose from an 18-year low of 5.42% to 9.9% in 21 (vs industry ROE rose from 3.6% to 7.8%).

Management are from the internal business line or from the East, the 2021 annual report proposed to "create another Zheshang Securities", the first repurchase securities firm after the new buyback rules. Senior executives of the company have rich practical experience. Chairman Wu Chenggen joined Zhejiang Merchants in 2007 and participated in the reorganization of Jinxin Securities, the predecessor of the company. Zhao Weijiang, Chief Information Officer, Gao Wei, Chief risk Officer, and Sheng Jianlong, Chief Financial Officer, all joined Zhejiang Securities in 2006. Dong Mi Zhang Hui has been in charge of solid collection and bond investment banking since joining Zheshang Securities in 2007. Zhejiang Merchants is the first repurchase securities firm since the new repurchase rules in October 22. As of 23-6-30, the repurchase of 36.78 million shares is intended to be used in the equity incentive plan. The upper limit of the repurchase price is 55.2% higher than the closing price on the announcement date (22-10-20), reflecting the management's confidence in the development of the company.

Wealth management: relying on the location advantages of developed private equity management and high net worth customers in Zhejiang Province to achieve differentiated development of private equity consignment. According to the 2020 Annual report, Zheshang Securities designated the reform of large wealth management as the "number one project" in 2021, and reformed the wealth management business from the aspects of organizational structure, staffing and investment team: in terms of organizational structure, set up a wealth management department, and KPI focused on ownership; in terms of staffing, set up wealth management functions in management specifically in charge of wealth management business; in terms of investment team, put forward the strategy of bank staffing. Zhejiang merchants' consignment income increased from 62 million in 18 years (accounting for 8.8% of brokerage business income) to 303 million yuan in 22 years (accounting for 16.2% of brokerage business income). The company has a high proportion of private placement consignment, and consider contributing performance remuneration commission. Expanding the scale of ownership will bring broad room for performance growth in the future.

Asset management business: through the wholly-owned subsidiary Zheshang asset management to carry out securities firm asset management business, with a public offering license, active management scale accounts for nearly 90%. Zheshang Securities is the fifth securities firm in the industry to set up an independent asset management subsidiary. Zheshang Asset Management obtained a public offering license in 2014. The company positioned the asset management business as the "number one project" in 22 years. By the end of 2022, the asset management scale of Zhejiang merchants' asset management stock was 91.72 billion, down 14.3% from the same period last year, mainly due to the rectification of new regulations on asset management. The asset management of Zhejiang businessmen has continuously improved its active management ability. at the end of 2022, the active management scale reached 89.23 billion yuan, accounting for 97.3% of the total scale, reaching the highest level in the past three years. With reference to the transformation of the wealth management business of the previous "number one project", we think that the asset management business of Zhejiang businessmen can be expected in the future.

Investment banking business: deep ploughing of resources in Zhejiang Province, strengthening government coordination, 2020-22 Zhejiang Merchants corporate bond underwriting scale are among the top 10. Zhejiang province is rich in private resources. Zeshang Securities took the "Phoenix Action 2.0" plan as an opportunity to sign strategic cooperation agreements with the government and industry institutions to accumulate rich project reserves. As of 2023-7-31, the company's 25 IPO reserves accounted for 64% of the provincial enterprises. According to Wind,2022, the underwriting scale of Zhejiang Merchants corporate bonds accounted for 82% of the total debt underwriting scale, and the corporate bond underwriting scale ranked first in the province for 4 consecutive years (2019-2022), and ranked among the top 10 in the industry for 3 consecutive years (2020-2022).

Investment analysis opinion: first coverage, give buy rating, segment valuation 23e target market capitalization of 53.3 billion, up 27%. The company's consignment benefits from the rapid development of the gathering advantage of high net worth people in Zhejiang region, and the scale of corporate bond underwriting is among the top 10 IPO reserves in the industry, which is expected to directly benefit from the comprehensive registration system. It is estimated that the net profit of Zheshang 23-25e Zhejiang Securities is 20.8,26.2 and 3.18 billion yuan respectively, compared with the same period last year, the net profit cagr of 23-25e is 23.6%. Segment valuation, light capital business to give segment PE valuation, heavy capital business to give 0.9 times PB valuation, a total target market capitalization of 53.3 billion, an increase of 27%.

Risk tips: 1, if liquidity is tightened, it will affect market trading volume, thus affecting brokerage, asset management and other business performance; 2, if the macroeconomic decline significantly, leading to a decline in the profitability of the company's wealth management business.