CITIC Securities (600030): Continuation of rights issue, capital increase and statement expansion

Event: The company's operating revenue in 2020 was 54.38 billion yuan (YoY+26%), net profit attributable to the parent company was 14.9 billion yuan (YoY+22%), weighted average ROE was 8.4% (YoY+0.7 pct.), and EPS was 1.16 yuan (2019:

    1.01 yuan). We believe that the highlights of the company include: (1) the company plans to raise 28 billion yuan through share allotment, accelerate the asset side expansion, strengthen its capital strength, and consolidate its leading advantages; (2) The company has obvious advantages in investment banking capability, institutional customer resources and capital strength. Large amount of provision further enhances asset quality. It is expected that investment banking, institutional sales, direct investment and other businesses will continue to benefit from the reform of the registration system; (3) The company enjoys a valuation premium, and industry leaders are more favored by the market.

    Asset light business - brokerage and investment banking increased significantly, and asset management transformation was actively promoted.

    (1) Brokerage business increased by 52% year on year, and financial management transformation accelerated. Benefiting from the remarkable recovery of market trading and investment (the average daily stock based trading volume in 2020 was+62% on a year-on-year basis), and the results of business transformation and M&A of Guangzhou Securities appeared, the company realized a brokerage business income of 11.26 billion yuan (YoY+52%) in 2020, the market share of stock based trading volume rose to 6.5% (YoY+0.8 pct.), and the revenue from selling financial products on a commission basis was 1.96 billion yuan (YoY+145%).

    (2) The leading position of investment banking business is stable, and the scale of equity and debt underwriting is the largest. In 2020, the company realized investment banking business income of 6.88 billion yuan (YoY+54%), of which the A-share lead underwriting amount and bond underwriting amount were 313.6 billion yuan (YoY+12.1%) and 1.3 trillion yuan (YoY+28%) respectively, ranking first in the industry. With the steady progress of the reform of the registration system, it is expected that the company's investment banking business will continue to benefit.

    (3) The transformation of asset management business took rapid and steady steps, and the proportion of active management scale increased. In 2020, the company will achieve asset management revenue of 8.01 billion yuan (YoY+40%), and the year-end asset management scale will be 1.4 trillion yuan (YoY - 2%), of which the active management scale will expand to 1.05 trillion yuan (YoY+51%), accounting for 77% (YoY+27 pct.). With the formal establishment of the company's asset management subsidiary in the future, it is expected that the company's collective public offering transformation is expected to further accelerate.

    Heavy asset business - good financial orientation led to high net interest income, and provision fully optimized asset quality.

    (1) Self support remained stable and capital utilization efficiency was optimized. In 2020, the company achieved a revenue of 17.91 billion yuan (YoY+13%) from its own business, of which H2 only achieved 6.11 billion yuan (- 48% month on month), which we believe is related to the ferment of defaults in the bond market in the second half of the year. The company's self operated expansion continued, and the proportion of the parent company's equity and derivatives in net capital rose to 78.5% (YoY+30.7 pct.), and the proportion of non equity accounted for 293.17% (YoY+3.9 pct.).

    (2) The performance of the two financial institutions improved and the interest income increased. Benefiting from the rising heat of the two financing (the balance of the two financing at the end of 2020 is+59% higher than that at the beginning of the year), the company realized an interest income of 6.79 billion yuan (YoY+48%) in 2020, driving the net interest income to 2.59 billion yuan (YoY+27%), a year-on-year change from negative to positive compared with the first half of the year.

    (3) The provision for credit impairment is sufficient, and the asset quality is consolidated. In 2020, the company's credit impairment loss reached 6.58 billion yuan (YoY+248%, higher than the total of the previous three years), including 4.88 billion yuan (YoY+517%) of the impairment of resale financial assets. The provision fully promoted the clearing of stock risk and further enhanced asset quality.

    Investment suggestion: Buy-A investment rating. We predict that the company's EPS will be 1.42/1.50/1.91 yuan from 2021-2023. Considering that under the trend of deepening capital market reform and building aircraft carrier level securities companies, leading securities companies have strong certainty in long-term profit improvement, maintain the Buy-A rating, and give a target price of 31 yuan, corresponding to a valuation of 2xPB.

    Risk warning: the effect of global epidemic prevention and control is not ideal/derivatives market making hedging risk/policy change risk