Incidents:

On August 30, CICC announced its 2024 semi-annual report. The company achieved revenue of 8.91 billion yuan in the first half of the year, down 28.3% year on year; net profit to mother was 2.23 billion yuan, down 37.4% year on year; weighted average ROE for the first half of the year was 2.12%, down 1.67 pct from the same period last year; and basic earnings per share were 0.394 yuan/share. 24H1 announced a mid-term dividend plan, with a cash dividend of 0.9 yuan (tax included) for every 10 shares and a cash dividend of 0.43 billion yuan (tax included), with a dividend ratio of 19.5%.

Comment:

24Q2's revenue increased significantly in a single quarter compared to Q1. 24H1 achieved revenue of 8.91 billion yuan, -28.3% year over year; Q2 revenue of 5.04 billion yuan increased 30% over Q1; 24H1's net profit to mother was 2.23 billion yuan, which was -37.4% year over year, and net profit of Q2 was 0.99 billion yuan, down 20.1% from Q1, mainly due to the increase in cost side expenses in the Q2 single quarter affecting the month-on-month decline in net profit. 24H1's self-employed/brokering/investment banking/asset management business accounted for 47.8%/19.9%/14.4%/6.2% of revenue respectively, +12.2/-0.2/-1.7/+1.0pct year-on-year respectively. The company's revenue structure changed significantly over the same period last year, and self-operation contributed to the main revenue increase.

Brokerage revenue continued to be under pressure, and net interest expenses increased year over year. In the first half of 2024, the average daily trading volume of the A-share market share base was 984.6 billion yuan, -6.8% year on year; the average financing balance of the two 24H1 markets was 1.52 trillion yuan, -4.5% year over year.

The net revenue of 24H1's brokerage business was 1.77 billion yuan, or -29.1% year over year. It is estimated that it was mainly affected by shrinking market trading volume; Q2 increased 13.1% month-on-month in a single quarter compared to Q1, which is estimated to be a seasonal business recovery. 24H1's net interest expenditure was 0.81 billion yuan, +94% year over year, mainly due to a decrease in interest income due to a decrease in the average scale of domestic securities lending business compared to the first half of 2023.

Investment banking business revenue declined sharply year-on-year, and the scale of refinancing was leading in the industry. In 24H1, there were 44 IPOs and 115 refinancing projects in the A-share market, respectively. The amount raised was 32.49/140.48 billion yuan, respectively, and the amount raised was -84.5%/-69.0% year-on-year. 24H1 completed 4/9 A-share IPO/refinancing projects, with lead underwriting amounts of 1.57/8.66 billion yuan, respectively, -92.2%/-75.6% year-on-year, and ranked 8th and 2nd in the underwriting market, respectively.

24H1's domestic bond underwriting scale was 312.48 billion yuan, up 1.7% year on year; overseas bond underwriting scale was 2.199 billion US dollars, up 24.2% year on year. 24H1 has announced 29 mergers and acquisitions with a transaction value of 23.42 billion US dollars, including 25/4 domestic mergers/cross-border and overseas mergers and acquisitions respectively, involving a total of 23.23/0.193 billion US dollars respectively. In 24H1, net revenue from the company's investment banking business was -35.7% to 1.28 billion yuan, mainly due to stricter regulation of the IPO and refinancing markets and the decline in the overall financing scale of the market. The Q2 quarter increased by 84.4% over Q1 to 0.83 billion yuan. It is estimated that the increase in debt bearing capacity will affect the revenue for the single quarter. In the future, the company will continue to thoroughly grasp mergers and acquisitions opportunities in key industries, promote the integration and upgrading of market-based industries, promote domestic and foreign linkage advantages, and steadily increase market share and obtain performance recovery.

Proprietary businesses contributed a lot to revenue, and the scale of bond investment increased significantly in the first half of the year. At the end of June '24, the size of the company's transactional financial assets was 248.4 billion yuan, -12.7% from the end of the previous year, down 7.5 billion yuan from the end of the Q1 quarter. Among them, stock equity/bond assets were 88.85/111.77 billion yuan respectively, an increase of -36.6%/+24.0% from the beginning of the year, and the scale of bond investment increased significantly. 24H1's own business revenue (including profit and loss from changes in fair value) was 4.26 billion yuan, -3.8% year over year, and Q2 increased 30.7% from Q1 to 2.42 billion yuan in a single quarter. In the first half of the year, due to the downturn in the stock market, the company optimized its investment structure, increased bond investment, and reduced stock investment. Overall, the revenue from the company's own business was relatively stable in the first half of the year. The increase in revenue in Q2 in a single quarter was mainly due to the decline in bond interest rates driving fixed income investment to release performance.

The scale of asset management is stable, and the size of CICC funds has increased significantly over the same period last year. At the end of the first half of the year, the company's asset management scale was 545.87 billion yuan, of which the scale of the pooled asset management/ single asset management business was 159.8/386.05 billion yuan, respectively, -6.4%/-12.3% year over year; the wholly-owned subsidiary CICC Fund management scale reached 172.79 billion yuan, +32.6% year over year. Among them, the size of public funds increased to 163.13 billion yuan, up 28.2% from the end of last year. In 24H1, the net revenue from the company's asset management business was 0.56 billion yuan, -15% year-on-year. It is estimated that sluggish market conditions and fund fee reforms mainly affect asset management business revenue. In the future, as the scale of asset management business increases, revenue space is expected to open up further.

Profit prediction and rating: As a strong leading brokerage firm, the implementation of mid-term dividends will further enhance investors' sense of acquisition. In the future, it is expected to take the lead in benefiting from various capital market reform policies and obtain performance recovery.

In view of the current volatile A-share market and uncertainty over the recovery of the company's performance for some time to come, we predict that the company's net profit for 24-26 will be 49.5 (down 29.8%)/54.7 (down 25.5%)/58.9 billion yuan (down 23.1%), EPS will be 1.02/1.13/1.22 yuan, respectively, and the corresponding PE will be 27.90/25.23/23.45 times, respectively, maintaining the A-share “gain” rating.

Risk warning: The downward pressure on the economy is increasing; active capital market reforms fall short of expectations.