Huatai Securities released its 2024 quarterly report. The company achieved cumulative operating income of 6.11 billion yuan, -32% year over year; net profit to mother of 2.29 billion yuan, -29% year over year; and ROE 1.37%, a decrease of 0.49pct from the same period last year.

Fee-based business: wealth management continues to lead the industry

1) The company achieved brokerage revenue of 1.36 billion yuan in 2024Q1, -11% y/month-on-month +2%, accounting for 24.2% of the main securities revenue, or +6.6pct year on year. The average monthly activity of Zangle Fortune Connect in 23 years was 9.064,300, ranking first in the market, highlighting the company's leading retail advantage.

2) The company achieved asset management revenue of 1.11 billion yuan in 2024Q1, +10% YoY/-0.1% month-on-month, accounting for 19.7% of the main securities revenue. Huatai Berry's non-commodity AUM, a subsidiary of the company, increased sharply year-on-year. As of the end of 2024Q1, Huatai Berry's non-commodity AUM was 35.6 billion yuan, +59% over the same period last year.

3) The company achieved investment bank revenue of 580 million yuan in 2024Q1, -26% YoY/-23% YoY. (1) According to the statistics of the release date, 2024Q1's IPO volume was 5 billion, -10%, ranking 2nd in the industry; the refinancing scale was 2.9 billion yuan, -89% year over year; (2) The debt was 233.9 billion yuan, -8% year-on-year, ranking 4th in the industry.

Capital business: Investment income is under pressure, and the scale of financial assets shrinks 1) In 2024Q1, the company achieved net investment income (including exchange income) of 1.84 billion yuan, -54% YoY/-40% month-on-month, which negatively drove the company's securities main revenue growth rate of 22.1 pct, mainly due to the equity market shock in the first quarter and the impact of a high base in the same period last year. As of the end of 2024Q1, the company's financial investment scale was 456.9 billion yuan, -1% year-on-year. We estimate the company's annualized return on investment in 2024Q1 to be 1.55%, -2pct year over year.

2) The company achieved net interest income of 230 million yuan in 2024Q1, -23% year-on-year, mainly due to the increase in the company's interest expenses, 2024Q1's interest expenses were 3.34 billion yuan, +3% year-on-year.

Profit Forecasts, Valuations, and Ratings

Considering that the sale of all shares held by the company in AssetMark is expected to contribute to related revenue, we expect the company's 2024-2026 revenue to be 371/367/37.8 billion, respectively, 1.5%/-1.2%/3%; we expect the company's net profit to be 141/115/13.5 billion yuan respectively, +10.8%/-18.7%/+17.3% YoY; EPS is 1.56/1.27/1.49 yuan/share, respectively. We believe the company will continue to maintain its leading position in wealth management in the future, and the performance is expected to recover further as the market recovers. Maintain the company's PB 1.2 times in 2024, target price 19.99 yuan, and maintain the “buy” rating.

Risk warning: Market recovery falls short of expectations, increased competition in the industry, risk of policy changes