Incident: On 10/30, CICC disclosed its 2024 three-quarter report. The results were slightly lower than expected. 9M24 achieved revenue of 13.45 billion yuan, -23% year over year, net profit of 2.86 billion yuan, or -38% year over year; of these, 3Q24 net profit to mother was 0.63 billion yuan, -40% year on month, -36% month on month; 9M24 weighted ROE (not annualized) was 2.64%, -2.2 pct year over year.

9M24 Securities's main revenue fell 23% year on year, outperforming the sector (down 5% year over year), and all business lines were under pressure year on year.

9M24 CICC achieved 13.33 billion in revenue from the main securities business (excluding bulk commerce and other revenue), -23% year over year. By category, 9M24's business revenue (year-on-year growth rate) is as follows: brokerage 2.56 billion (-27%), investment banking 2.06 billion (-21%), asset management 0.84 billion (-12%); net interest loss of 1.19 billion (increase in loss), and net investment of 7.37 billion yuan (-18%).

9M24's revenue structure is as follows: brokerage 19%, investment banking 15%, asset management 6%, net interest -9%, investment 55% (excluding other fees and long-term stock investments). We believe that the lower-than-expected performance is mainly due to 1) the overall low level of 9M24 trading putting pressure on fee revenue; 2) declining demand due to the tightening of the derivatives business, which affected investment returns.

The table is steadily expanding, and we look forward to benefiting from the optimization of risk control indicators in the future. At the end of 3Q24, CICC's total assets were 655.4 billion yuan, +5% compared to the beginning of the year; net assets to mother were 108.8 billion yuan, +4% compared to the beginning of the year, and operating leverage at the end of the period was 5.18 times (excluding customer funds, 1H244.97 times). As a high-quality leading brokerage firm, CICC is expected to benefit from the newly revised brokerage risk control index system on September 20, and the company is one of the first institutions approved to carry out convenient exchange operations. We look forward to an increase in watch usage capacity in the future.

Investment income is under pressure in the short term. The company's financial investment assets at the end of the period were 366.6 billion yuan, compared with +1.2% at the beginning of the year, 3.37 times the final investment leverage (financial investment size/net assets attributable to mother), and +0.15 times the month-on-month. The estimated 3Q24 annualized return of 3.77%/compared to the 2Q24 annualized yield -0.31 pct. It is expected that the hedging equity holdings for OTC derivatives are still large.

Furthermore, due to exchange rate fluctuations, exchange earnings from foreign exchange derivatives business carried out to hedge against foreign currency exposure declined.

Domestic IPO business picked up year on year in 3Q24; overseas investment banks maintained their advantage. In terms of domestic investment banking business, according to the issuance date, 3Q24's IPO lead underwriting scale was 2 billion yuan/yoy -75% (industry yoy -86%), ranking 3rd in the industry; refinancing lead underwriting scale was 1.7 billion yuan/yoy -93% (industry yoy -83%), with a market share of 8.6% /yoy-11.1pct, maintaining 2nd place in the industry; 37 billion/yoy+21 %, market share 9.7% /yoy+1.5pct, ranking 3rd in the industry. Looking at project reserves, as of October 30, CICC's A-share equity financing (IPO+ fixed increase+allotment+preferred shares) had a total of 16 projects in the queue (ranking 4th), injecting momentum into the future investment banking business to release performance. In terms of overseas investment banking business, according to Wind, 9M24 ranked first in the industry in terms of Hong Kong stock underwriting (IPO+ issuance+allotment). The company continued to consolidate its advantages in major projects, and CICC underwrote 8 orders in 9M24 Hong Kong's top ten IPOs.

Investment analysis opinion: Lower the profit forecast and maintain the holdings increase rating. The company's 9M24 brokerage business declined by double digits year on year, outperforming the market significantly (average daily share base turnover yoy -8% during the same period). Therefore, we lowered the company's share base turnover assumption. At the same time, the company's 3Q24 return on investment fell short of expectations, so the return on investment assumption was lowered, thereby lowering the profit forecast.

We expect 2024-2026E net profit to be 4.5, 5.4, and 6 billion yuan respectively (originally forecast 5.2, 5.8, 6.4 billion yuan), or -26%, +19%, and +11% year-on-year respectively. The current stock price corresponding to 24E is 1.95xPb. Considering that CICC is a high-quality brokerage firm, it is the target of capital market reforms, and the company's overseas investment banking advantage is stable, maintaining the company's “increase in holdings” rating.

Risk warning: On October 11, CICC received an advance notice of administrative penalties from the Securities Regulatory Commission; on May 10, the Beijing Securities Regulatory Bureau disclosed its decision to order the correction of administrative supervision measures against CICC.