Event: Yuexiu Capital released its 2023 annual report. Net profit to mother was 2.40 billion yuan/yoy -4% in '23, and revenue of 14.79 billion yuan/yoy +4% in '23. The 23-year weighted average ROE was 8.66% /yoy-1.0pct.

The three main businesses contributed 60% of operating profit, with leasing business (including new energy) as the main growth point.

The company's 23 years of financial leasing business (including new energy business), non-performing asset management business, investment management business, and futures business achieved revenue of 43.2, 19.1, 1.7, 84.0 million yuan, +5%, -10%, +7% year-on-year, and achieved operating profit of 18.5, 2.0, 4.7, and 95 million yuan, +6% year-on-year, -81%, -21%, and +67%, respectively. The company's three main businesses, financial leasing, AMC, and investment management, contributed a total of 2.51 billion yuan in operating profit in '23, accounting for 62% /yoy -15% of operating profit.

The strategy is to increase its holdings of CITIC Securities and continue to play its role as a profit ballast. Based on recognition of the steady growth of CITIC Securities as a leader in the securities industry, in 2023, the company further increased its holdings of CITIC Securities shares through secondary market share purchases, participation in CITIC Securities allotments, subscriptions, etc.; at the end of '23, the company's shareholding ratio of CITIC Securities was 8.68% /+0.54 pct compared to the beginning of the year. As of 24/2/27, the company's shareholding ratio in CITIC Securities reached 8.94% (including 6.28% for A shares and 2.66% for H shares). The company's holdings of CITIC Securities shares are calculated using the equity method, and confirmed investment income of 1,631 billion yuan/40.3% of operating profit in 2023.

Yuexiu Leasing: Optimized business structure, accelerated investment in new energy business, and achieved positive profit growth. In terms of performance, in '23, Yuexiu Leasing achieved revenue of 4.31 billion yuan/yoy +5%, including financial lease interest income of 3.43 billion yuan/yoy -5%, new energy electricity revenue of 460 million yuan/yoy +1096%; realized net profit of 1.39 billion yuan/yoy +7%, and an average return on net assets of 9.8% /yoy-0.60pct. In terms of scale, in '23, Yuexiu Leasing formed a financial leasing+new energy leasing business structure, with an annual investment of 38.87 billion yuan/yoy +13%/reaching a record high, with additional investment of 21.76 billion yuan in financial leasing, focusing on livelihood engineering and inclusion; the new energy sector completed a capital increase of 2 billion yuan for the subsidiary Yuexiu New Energy in '23, adding 15.22 billion yuan/yoy +894% throughout the year. The installed capacity of photovoltaic power plants reached 4.05 GW. In terms of the non-performing rate, the company's bad credit asset ratio at the end of '23 was 0.36% /yoy-0.09pct.

Guangzhou Assets: Under the adjustment and transformation of the real estate market, the scale of AMC's business has shrunk, and the investment banking business continues to be explored. In terms of performance, Guangzhou Assets achieved revenue of 1.91 billion yuan/yoy -3% and net profit of 150 million yuan/yoy -80% in '23. In terms of scale, in the face of adverse factors such as fluctuations in the real estate industry and increased difficulty in disposing of non-performing asset packages in '23, the company added 13.01 billion yuan/yoy -79%. Among them, the acquisition scale of the personal loan business was 1.33 billion yuan/yoy -68%, and the scale of disposal (withdrawal) of non-performing assets was 15.23 billion yuan/yoy -34% throughout the year. In terms of strategic transformation, Guangzhou Assets established an investment banking division in '23 to actively carry out bailout and asset operation services for troubled institutions, completed the launch of the first bailout project for troubled listed companies, and nurtured new momentum for development.

Investment management: The investment management business is under slight pressure, and IPOs of invested companies are accelerating. In '23, Yuexiu Industrial Investment achieved business revenue (operating income, investment income and profit and loss from changes in fair value) of 860 million yuan/yoy -1%, and net profit of 350 million/yoy -25%. In terms of Yuexiu Industrial Fund, in '23, Yuexiu Industrial Fund adhered to an industry alliance+investment and research-driven strategy, adding an additional investment of 5.88 billion yuan throughout the year; continued to strengthen exit management. Eight projects invested by Yuexiu Industrial Fund since '23 have completed IPOs/ranked in the top 10 in the industry. In terms of investment in Yuexiu Industrial, as of the end of 23, Yuexiu Industrial Investment's equity investment balance was 7.62 billion yuan/yoy +40%, of which direct equity investment added 1.14 billion. On the exit side, 7 projects that Yuexiu Industrial Investment has invested in and have not withdrawn have completed IPOs (3 have entered the ban period).

Investment analysis opinion: Give a “Highly Recommended” rating. As the only A-share listing platform under Yuexiu Group, Yuexiu Capital has a clear “3+1” core industry structure and an accelerated layout of the new energy business, giving it a “Highly Recommended” rating. The net profit of 24-26E Yuexiu Capital is estimated at 2.43 billion yuan, 2.55 billion yuan, and 2.66 billion yuan, or +1% year-on-year. The current closing price corresponds to 24-26E dynamic PB of 0.93x, 0.88x, 0.83x.

Risk warning: increasing downward pressure on the economy; subsidiary operations falling short of expectations; risk of policy changes.