The first batch of established brokerage firms was established, and the controlling shareholder was changed and implemented. The company was founded in 1988, and its predecessor, Zhejiang Securities Company, was one of the first domestic brokerage firms. In 2020, Peking University Fangzheng Group was restructured, and Ping An Life was approved to become the main company through the establishment of the new Fangzheng Group. After the restructuring, the majority shareholder of the company was Xinfangzheng Group, accounting for 28.71% of the shares and China Ping An indirect shareholding of 19.1%; after Beijing Zhengquan's shares were forfeited, the second-largest shareholder was the Social Security Fund, accounting for 13.24%; and China Cinda, the third largest shareholder, held 710,000 shares, accounting for 8.62%.

Shareholder risk has been realized, and leverage ratio and ROE have rebounded markedly. Previously, due to a series of shareholder and compliance risks, the company's long-term bond financing was blocked, resulting in obvious restrictions on the company's various business development. ROE continued to fall below the average of listed brokerage firms until 2021. As the company's shareholders' risk was realized and long-term bond financing channels were opened, the company's various businesses returned to normal. The leverage ratio increased from 2.4 times the low in 2020 to 3.7 times in the first half of 2023, and the company's ROE has surpassed the average of listed brokerage firms since 2022.

In the first half of 2023, the company achieved operating income of 4,054 billion yuan, a year-on-year decrease of 0.5% under a high base, net profit to mother of 1.44 billion yuan, an increase of 1.3% year-on-year, and a weighted average ROE of 3.29%.

The company's brokerage business has a comparative advantage and has great potential for improvement. The company's brokerage business revenue accounted for an average of 48% of revenue in the past six years, accounting for a relatively high proportion, which is the company's dominant business. The company's brokerage business is relatively strong. The industry ranking in 2018-2021 was stable at 12-14, which is significantly higher than other business rankings. The company inherits the network base of Fangzheng Securities and Minzu Securities, and has the highest number of branches in the industry. Considering that there is still a big gap between the company's brokerage and finance rankings and the ranking of business outlets, we believe that with the gradual deepening of the company's wealth management transformation, the brokerage business still has great potential for improvement.

Investment banks' revenue fluctuates greatly, and the scale of active management of the asset management business is growing rapidly. The company's investment banking revenue in 2016-2022 fluctuated greatly. Investment bank revenue once fell from 580 million yuan in 2016 to 340 million yuan in 18, then rebounded to 660 million yuan in 2020. After fluctuations in 2021 and 2022, the company achieved investment banking revenue of 128 million yuan in the first half of 2023, or -43% over the same period last year. The company's asset management business is shifting from active to active management. Although the scale of the company's asset management dropped sharply from 299.1 billion yuan in 2017 to 76.6 billion yuan in the first half of 2023, the proportion of active management increased from 19.13% in 2017 to 32.57% in 2021. In 2020-2022, the company's asset management revenue stabilized at the center of 240 million yuan. In the first half of 2023, asset management revenue was 92 million yuan, -32% year-on-year.

The company's self-operating performance has been outstanding since 2022. From 2016 to 2020, the scale of proprietary operations declined due to the impact on the debt side. In 2021, as various business risks were implemented slightly, bond pledge repurchase channels were opened, and the scale of proprietary business began to pick up. At the same time, the company gradually increased its share of fixed income self-employment, and the style became more steady. Since 2022, the company's own investment income has increased significantly. In 2022, it achieved investment income of 1.11 billion yuan, +52% over the same period, accounting for 14% of its operating income, which significantly boosted the company's overall performance growth; in the first half of 2023, it achieved a net investment income of 1,135 billion yuan, +26% over the same period last year.

[Investment Proposal] We expect the company's 2023-2025E EPS to be 0.29/0.33/0.36 yuan, and the BVPS will be 5.50/5.88/6.31 yuan respectively. The company was given 1.5-1.6x 2023E PB, corresponding to a reasonable value range of 8.25-8.80 yuan. It was covered for the first time, and a “superior to the market” rating was given.

Risk warning: Brokerage business doubles in volume and price; implementation of financial policy reforms falls short of expectations; the market continues to be sluggish and the bond market fluctuates.