Matters:
Fangzheng Securities released its semi-annual report for 2023, with operating income of 4,054 billion yuan (-0.54% year on year), net profit of 1,440 billion yuan (+1.29% year on year), and a weighted average ROE of 3.28% (year-on-year -0.1 pct).
Commentary:
The leverage ratio has increased. The H1 capital leverage factor is 5.66 times (+0.72 times over the previous year). Liquidity coverage rate is 138% (year on year +13.31 pct); net stable capital ratio is 133.99% (year on year +3.32 pct). The main regulatory indicators are basically out of the warning line. The general mandate to issue debt financing instruments has been adjusted. The second meeting of the fifth board of directors announced changes to general bond financing authorization (1). The upper limit of the size of domestic and foreign debt financing instruments as a share of net assets was adjusted from 230% to 300%. (2) The term of domestic and foreign debt financing instruments was increased from no more than 10 years to 15 years.
Last year, self-employment capacity was excellent, and the base was high. This year, the profit margin for self-employment declined somewhat. (1) Net investment income+change in fair value+interest income from other bond investments - investment income of joint ventures, H1 self-operated business revenue of 1,683 billion yuan (+12.99% YoY). The size of self-operated assets was 94.221 billion yuan (+26.39% year-on-year), and the annualized self-operating yield was 3.57% (-0.42pct). Proprietary non-equity securities and derivatives accounted for 89.93% (+0.97 pct compared to the previous year). (2) Transactional financial assets increased significantly to $55.226 billion (+60.37%), mainly due to H1's continued financing, significant growth in bonds payable, and interest spread strategies using transactional financial assets as collateral. Transactional financial liabilities and payable bonds increased sharply to $4.605 billion (+692.66%) and 16.808 billion yuan (+128.13%), respectively.
Client drive was added, and revenue from the pan-brokerage business increased significantly. Combined with total brokerage revenue plus interest income from two finance businesses plus interest income from monetary capital and settlement provisions, H1 pan-brokerage revenue was $3.428 billion (+17.24% YoY), accounting for 84.55% of operating income (+12.82pct). (1) Securities brokerage business (including seat leasing) revenue was 1,691 billion yuan (+21.97% YoY), and consignment financial products business was 146 million yuan (64.87% YoY). The stock base turnover for the first half of the year was 124.70 trillion yuan (+0.11% YoY). The increase in revenue from the securities brokerage business was mainly due to the company's multi-channel account opening and drainage. The number of new H1 customers opened was 980,000 (+3.83% YoY), of which the number of online accounts opened exceeded 51,600 (+47% YoY). (2) Liangrong's business scale was 29.688 billion yuan (+11.74% year on year), and the company's share of Liangrong's market increased to 1.8% (+0.2pct year on year).
Other businesses: Investment banking market rankings have risen, and the scale of asset management has increased slightly. (1) The net revenue of H1 investment banking business in 2023 was 128 million yuan (-43.1% year on year), accounting for 3.15% of total revenue (-2.35 pct. YoY). Among them, net equity underwriting revenue was 65 million yuan (-39% YoY), total underwriting scale was 3.342 billion yuan (+157% YoY), and 2 equity projects were completed, including 1 IPO project for the Beijing Stock Exchange and 1 main board refinancing project. The market ranking jumped to 22nd place, up 20 places from the same period last year. (2) The net revenue of H1 asset management business in 2023 was 92 million yuan (-32.0% YoY), of which the securities asset management scale was 76.647 billion yuan (+7.98% YoY).
Investment advice: Last year benefited from a high return on self-employment and high market trading activity, with a high performance base.
Market trading activity declined year-on-year in the first half of this year, and performance fluctuated to a certain extent within the expected range. However, it can be seen that the long-term center of ROE has increased, the scale of proprietary assets is growing rapidly, and customer acquisition has increased markedly. If market sentiment recovers, I am optimistic that ROE will rebound. We maintained the company's 2023/2024/2025 EPS forecast of 0.33/0.41/0.49 yuan, BPS of 5.57/5.92/6.33 yuan, corresponding PB of 1.31/1.23/1.15 times, and ROE of 5.89%/6.88%/7.77%, respectively. We maintained a PB valuation 1.5 times the company's 2023 performance, corresponding to a target price of 8.4 yuan, and maintained a “recommended” rating.
Risk warning: Risk of shareholder changes, increased downward pressure on the economy, reduction of capital holdings in the north, etc.