Matters:

Western Securities released its 2024 interim report. Total revenue after excluding other business revenue: 2 billion yuan, -6.9% YoY, 1.3 billion yuan in a single quarter, +0.48 billion yuan month-on-month. Net profit to mother: 0.65 billion yuan, -8.4% year over year, 0.46 billion yuan in a single quarter, +0.26 billion yuan month-on-month.

Commentary:

The company's ROE during the reporting period was 2.3%, -0.3 pct year-on-year. ROE in a single quarter was 1.6%, +0.9pct month-on-month.

Let's take a look at DuPont's split:

1) The company's financial leverage ratio at the end of the reporting period (total assets excluding customer funds) was 2.7 times, 0 times the previous year, and -0.1 times the previous month.

2) The company's asset turnover ratio during the reporting period (total assets excluding customer funds, total revenue excluding other business revenue) was 2.6%, -0.2 pct year over year, and the asset turnover ratio in a single quarter was 1.6%, +0.7 pct.

3) The company's net profit margin during the reporting period was 32%, -0.5pct year on year. The net profit margin for the single quarter was 36.3%, +11.2pct month-on-month.

Looking at the balance sheet, after excluding customer capital, the company's total assets were 77.4 billion yuan, +0.63 billion yuan year on year, and net assets: 28.2 billion yuan, +0.68 billion yuan year on year. The leverage ratio was 2.7 times, -0.04 times year over year. The company's interest-bearing debt balance was 42.5 billion yuan, -2.24 billion yuan month-on-month. The debt cost ratio for the single quarter was 0.7%, 0 pct month-on-month, and -0.1 pct year over year.

Increased return on heavy capital businesses. The total net revenue from the company's heavy capital business was 1.3 billion yuan, or 0.87 billion yuan in a single quarter, 0.451 billion yuan compared to the previous quarter. The net return on the heavy capital business (non-annualized) was 1.9%, 1.3% in a single quarter, +0.7pct. Let's break it down:

1) Proprietary business: The total revenue from the company's own business (change in fair value+net income from investment - net income from joint ventures) was 1.4 billion yuan, 0.91 billion yuan in a single quarter, or +0.42 billion yuan over the previous quarter. The yield from self-employment in a single quarter was 1.6%, +0.8pct month-on-month. In comparison, the average yield of active equity funds in a single quarter was -2.6%, and the average yield of pure bond funds was 1%.

2) Credit business: The company's interest income was 0.49 billion yuan, 0.24 billion yuan in a single quarter, +0.001 billion yuan month-on-month.

The scale of the two finance business was 7.8 billion yuan, -0.31 billion yuan month-on-month. The market share of the two finance loans was 0.52%, +0.03pct year over year.

3) Pledging business: The balance of financial assets purchased and resold was 4.2 billion yuan, -3.16 billion yuan compared to the previous month.

Revenue from light capital businesses is generally stable. Brokerage revenue was 0.38 billion yuan, or 0.19 billion yuan in a single quarter, +0.6% month-on-month. The average daily market turnover during the comparison period was 832.15 billion yuan, -7.3% month-on-month. Investment banking revenue was 0.08 billion yuan, or 0.05 billion yuan in a single quarter, +0.01 billion yuan month-on-month. Looking at market sentiment during the comparison period, the IPO lead underwriting amount was 3.27 billion yuan, -85.1% month-on-month, the refinancing lead underwriting amount was 27.46 billion yuan, -65.9% month-on-month, and the corporate creditor underwriting amount was 682.75 billion yuan, or -38.3% month-on-month. Asset management revenue was 0.08 billion yuan, or 0.06 billion yuan in a single quarter, +0.03 billion yuan month-on-month.

In terms of regulatory indicators, the company's risk coverage rate was 272.4%, compared to -19.6pct in the previous period (warning line was 120%), of which venture capital reserves were 8.4 billion yuan, +6.1% compared to the previous period. Net capital was $22.8 billion, -1% compared to the previous period.

The net stable funding ratio was 147.8%, compared with -30.4 pct in the previous period (warning line was 120%). The capital leverage ratio was 26.8%, +0.3pct compared to the previous period (warning line was 9.6%). Proprietary equity securities and their derivatives/net capital were 5.9%, compared with -4.5 pct in the previous period (warning line of 80%). Proprietary non-equity securities and their derivatives/net capital were 230.7%, +10.1pct compared to the previous period (warning line of 400%).

Investment advice: The company actively seeks diversified development paths and promotes the collaborative development of the five major businesses. At the same time, it has effectively boosted the rapid growth of products and institutional business through the three driving forces of “institutional financial management, business collaboration, and institutional brokerage”. We maintain our previous forecast. The EPS for Western Securities 2024/2025/2026 is 0.27/0.28/0.31 yuan, and BPS is 6.39/6.52/6.67 yuan respectively. The PB corresponding to the current stock price is 0.98/0.96/0.94 times, respectively, and the weighted average ROE is 4.24%/4.40%/4.77%, respectively. Considering the company's growth and the improvement of the market environment, we maintain the PB valuation forecast of 1.2 times the company's 2024 performance, corresponding to a target price of 7.67 yuan. Maintain a “Recommended” rating.

Risk warning: The capital market fluctuates greatly, the downward pressure on the economy is increasing, and we continue to monitor the progress of mergers and acquisitions integration