Matters:
Nanhua Futures released its quarterly report. In 24Q1, it achieved total operating revenue of 990 million yuan (-28.3% YoY/-29.0%), total operating income of 300 million yuan (+10.3% YoY) (+10.3% YoY) based on the net amount method (minus other business costs), and net profit of 0.9 billion yuan (YoY +37.4% /Q-17.2%).
Commentary:
It was then qualified for overseas liquidation. On March 28, 2024, South China America was granted a clearing membership on the American Intercontinental Exchange (ICE-US), becoming the only domestic futures trader currently qualified as a liquidator in ICE US.
American Intercontinental Exchange (ICE US): Focuses on agricultural trade, with four varieties of raw sugar, cotton, coffee, and cocoa all serving as global pricing benchmarks. The acquisition of the dealer qualification this time will help further expand international business and achieve further growth in customer equity funds.
In an environment of high interest rates, net income from overseas interest in a single quarter reached a record high. Reducing the parent company's statement caliber from consolidated statements, Q1 net income from overseas interest was 130 million yuan (+36.9% year over year, +49.7% month-on-month, accounting for 72.6% of total net interest income), reaching the highest value in a single quarter since the Federal Reserve began this round of interest rate hikes. Overseas business growth has benefited from a sharp rise in volume and price: the increase in overseas customer rights led to an increase in margin interest income, and the Q1 effective federal funds rate remained high, with an average of 5.33% (+0.81 pct/month over month).
The gross margin of other business revenue is extremely low, and the impact of the decline on net profit is limited. Other business revenue is mainly based on margin trading, mainly income from risk management business provided to customers by the subsidiary Nanhua Capital. Q1 Revenue from other businesses fell sharply to 690 million yuan (-39.6% YoY/-34.4% month-on-month), putting pressure on revenue, but the impact on net profit was limited due to extremely low gross margin (average of about 1% over the past 3 years).
Domestic business is steady. Bilateral turnover of the futures market in 2012 was RMB 248.3 trillion (+2.70% YoY /-13.30%), parent company's net revenue from caliber fees and commissions was RMB 0.9 billion (-6.6% YoY/-23.8% YoY); net revenue from parent company's caliber interest of RMB 50 million (+49.5% YoY/+14.2% month-on-month).
Investment advice: The moat for the company's overseas business lies in business qualifications such as licenses and the first-mover advantage of early layout. In an environment of high interest rates, the first quarter results were in line with expectations. Interest rates are expected to remain high overall for 24 years, contributing an important profit growth point. We maintain our earnings forecast, and EPS expectations for 2024/2025/2026:
$0.80/0.94/1.06, BPS expectations: 6.80/7.66/8.62 yuan, ROE: 11.7%/12.3%/12.2%.
The current stock price corresponds to PE 12.6/10.7/9.5 times, respectively. Looking ahead to the company's annual performance and overseas, give the company a PE valuation of 17 times its 2024 performance, corresponding to a target price of 13.5 yuan, maintaining a “recommended” rating.
Risk warning: The Fed has exceeded expectations and entered a cycle of interest rate cuts, and corporate interest rate expectations are uncertain; there is uncertainty about exchange fees reduced; risk of changes in regulatory policies; risk of fluctuations in futures market turnover.