Matters:

Western Securities released its 2024 three-quarter report. Total revenue after excluding other business revenue: 2.6 billion yuan, -12.4% year over year, 0.6 billion yuan in a single quarter, and -0.7 billion yuan month-on-month. Net profit to mother: 0.73 billion yuan, -16.8% year over year, 0.08 billion yuan in a single quarter, -0.38 billion yuan month-on-month.

Commentary:

Fluctuations in brokerage revenue outweigh changes in industry turnover. Brokerage revenue was 0.55 billion yuan, or 0.17 billion yuan in a single quarter, -10% month-on-month. The average daily turnover during the comparison period was 678.74 billion yuan, or -18.4% month-on-month.

The total net revenue from the company's heavy capital business was 1.46 billion yuan, or 0.17 billion yuan in a single quarter, -0.7 billion yuan. The net return on heavy capital operations (non-annualized) was 2.3%, 0.3% in a single quarter, or -1pct. Let's break it down:

1) The total revenue from the company's own business (change in fair value+net income from investment - net income from joint ventures) was 1.61 billion yuan, 0.21 billion yuan in a single quarter, or -0.7 billion yuan over the previous quarter. Proprietary return for a single quarter (size of proprietary business/proprietary assets) was 0.4%, -1.2pct month-on-month. In comparison, the average yield of active equity funds in a single quarter was +11.93%, +14.54pct month-on-month, and +18.86pct year-on-year. The average yield of pure debt funds was +0.23%. -0.8 pct month-on-month, -0.32 pct year over year.

2) Credit business: The company's interest income was 0.72 billion yuan, 0.23 billion yuan in a single quarter, -0.01 billion yuan month-on-month.

The scale of the two finance business was 7.5 billion yuan, -0.24 billion yuan month-on-month. The market share of the two finance loans was 0.52%, +0.01pct year on year.

3) Pledging business: The balance of financial assets purchased and resold was 2.8 billion yuan, -1.38 billion yuan month-on-month.

The company's ROE during the reporting period was 2.6%, -0.6pct year-on-year. ROE in a single quarter was 0.3%, -1.4pct 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, -0.09 times year-on-year, and -0.1 times month-on-month.

2) The company's asset turnover ratio during the reporting period (total assets excluding customer funds, total revenue excluding other business revenue) was 3.4%, -0.4 pct year over year, and the asset turnover ratio in a single quarter was 0.7%, -0.9 pct month-on-month.

3) The company's net profit margin during the reporting period was 28%, -1.5pct year on year. The net profit margin for the single quarter was 13.5%, or -22.8pct month-on-month.

Looking at the balance sheet, after excluding customer capital, the company's total assets were 75.8 billion yuan, -0.96 billion yuan year on year, and net assets: 28.3 billion yuan, +0.59 billion yuan year on year. The leverage ratio was 2.7 times, -0.09 times year over year. The company's interest-bearing debt balance was 40.4 billion yuan, -2.15 billion yuan month-on-month. The debt cost ratio (interest expenses/interest-bearing liabilities) for the single quarter was 0.7%, which was the same as the previous month.

Investment banking revenue was 0.16 billion yuan, or 0.08 billion yuan in a single quarter, +0.03 billion yuan month-on-month. Looking at market sentiment during the comparison period, the IPO underwriting scale for the third quarter of 2024 was 15.374 billion yuan, +73.25%, the refinancing underwriting scale was 46.294 billion yuan, -14.23% month-on-month, and the corporate bond+corporate bond underwriting scale was 1042.446 billion yuan, +4.67% month-on-month.

Asset management revenue was 0.13 billion yuan, or 0.05 billion yuan in a single quarter, -0.01 billion yuan month-on-month.

In terms of regulatory indicators, the company's risk coverage rate was 304.8%, +12.8pct compared to the same period last year (warning line was 120%), of which venture capital reserves were 7.4 billion yuan, compared to -6% in the same period last year. Net capital was $22.6 billion, -1.9% compared to the same period last year. The net stable funding rate was 161.7%, compared to -16.5pct for the same period last year (warning line was 120%). The capital leverage ratio was 26.9%, +0.4pct compared to the same period last year (warning line was 9.6%). Proprietary equity securities and their derivatives/net capital were 8%, compared with -2.4 pct for the same period last year (warning line of 80%).

Proprietary non-equity securities and their derivatives/net capital were 224.2%, +3.5pct compared to the same period last year (warning line is 400%).

Investment advice: The company's light capital business exhibited steadily during the reporting period, and fluctuations in brokerage business revenue were superior to changes in industry trading volume. The decline in proprietary business was quite obvious from month to month. Focus on subsequent changes in the self-operated business exhibition industry and the progress of the company's business development under industry mergers, acquisitions and restructuring. We expect Western Securities's 2024/2025/2026 EPS to be 0.27/0.28/0.31 yuan and BPS to be 6.39/6.52/6.67 yuan respectively. The PB corresponding to the current stock price is 1.26/1.24/1.21 times, respectively, and the weighted average ROE is 4.24%/4.40%/4.77%, respectively.

Referring to comparable company valuations, considering that the short-term valuation repair in the brokerage sector is faster, we gave the company a PB valuation forecast of 1.5 times the 2025 performance, corresponding to a target price of 9.78 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