Introduction to this report:
Profits declined due to rising operating costs driven by the company's business and management expenses, and improved investment business drove revenue growth; it is expected that the company's two-round linkage business system will continue to deepen, and it is expected that the opportunities for capital market reform will be better grasped.
Key points of investment:
Maintain the “increase in holdings” rating and maintain the target price of 7.99 yuan/share, corresponding to 26.63xPE and 1.28xPb in 2023. Revenue/net profit for the first three quarters of 2023 was 88.56/1,581 billion yuan, +22.64%/-11.20% year-on-year; the weighted average ROE was -1.12pct to 2.99%, and the performance fell short of expectations. Based on the company's current business situation and market environment, the company's profit forecast was lowered to 23-25 EPS 0.30/0.38/0.42 yuan (before adjustment: 0.43/0.49/0.57 yuan). Considering the deepening of the company's two-round linkage strategy, the target price was maintained at 7.99 yuan/share, and the “increase in holdings” rating was maintained.
The increase in operating costs driven by business and management expenses led to a decline in profit, and the improvement in investment business drove revenue growth. 1) The increase in operating costs was the core reason for the poor profitability. The net profit margin for the first three quarters was -5.75pct to 21.60%; mainly due to the company's restorative investment in travel meetings, customer marketing and service, IT investment and manpower in the context of overall normalized economic and social operation, performance and management expenses +32.72% year-on-year to 4,826 billion yuan, and business and management rates (business and management fees/adjusted revenue) +10.07pct to 65.93% year on year.
2) Net income from the company's investment business changed from negative to 838 million yuan year on year, contributing 176.83% of the adjusted increase in revenue, which was the main reason for the increase; the yield mainly stemmed from market recovery and +1.42pct to 0.76% year on year; the size of financial assets was +32.87% compared to the end of '22 to 125.99 billion yuan.
The company's two-wheel linkage business system continues to deepen, and the service capacity of the entire business chain continues to increase. It is hoped that it will better seize the opportunities for implementing capital market reform policies and achieve performance exceeding expectations. The company's wealth management and large institutional business drive the core business system to continue to deepen. Institutional business is deeply involved in key industries and core regions to strengthen ecosystem construction; wealth management is guided by meeting customer asset allocation, improving financial products, and continuously improving investment and research expertise and product selection capabilities. It is expected that capital market reform policies will substantially implement opportunities and achieve development beyond expectations.
Catalyst: The gradual implementation of capital market reform policies.
Risk warning: The equity market has declined sharply.