Guosen Securities Mid-Term Report Overview: Performance Bottoming Out Focus on Three Investment Themes Under Industry Transformation Trend.

Guosen released a research report stating that leading listed securities firms are actively promoting business transformation, exploring new growth areas such as overseas business, wealth management and investment advisory, and laying out in financial technology. The proportion of overseas revenue for listed securities firms has increased to nearly 10%. The proportion of overseas assets for leading securities firms is approximately 20%. Business transformation continues to progress in a weak market. Taking CITIC SEC as an example, the development pace of overseas investment banking business in the first half of 2024 has accelerated compared to 2023, and buyer-side investment advisory has become a key focus for wealth management. Under the industry transformation trend, it is recommended to focus on the following investment themes: first, securities firms with high capital utilization efficiency and strong institutional client reserves, benefiting assets include: CITIC SEC (600030.SH) and others; second, securities firms pushing forward after merger and acquisition integration, benefiting assets include: Guolian (601456.SH); third, AI innovation, internet securities firms benefiting from the continuous advancement of technological innovation, benefiting assets include: East Money Information (300059.SZ). Guosen's main points are as follows: Revenue change: With the decrease in derivative risk exposure, performance improved quarter-on-quarter in the second quarter, and the proportion of investment income increased. In the first half of 2024, the revenue of listed securities firms was 195.831 billion yuan, a year-on-year decrease of 16.8%, and the net profit attributable to the parent company was 68.017 billion yuan, a year-on-year decrease of 21.0%. In the second quarter of 2024, revenue was 131.684 billion yuan, an increase of 21.6% quarter-on-quarter, and a decrease of 4.0% year-on-year, while net profit attributable to the parent company was 36.712 billion yuan, an increase of 17.3% quarter-on-quarter, and a decrease of 10.8% year-on-year. Revenue distribution and growth rate in the first half of 2024: brokerage 48.158 billion yuan, a year-on-year decrease of 12.6%, investment banking 14.003 billion yuan, a year-on-year decrease of 41.1%, asset management 22.696 billion yuan, a year-on-year decrease of 1.4%, interest 16.815 billion yuan, a year-on-year decrease of 29.1%, investment 76.607 billion yuan, a year-on-year decrease of 8.0%. Revenue distribution: brokerage 24.6%, investment banking 7.2%, asset management 11.6%, interest 8.6%, investment 39.1%. Asset structure: Establish long-term bond trading positions and explore equity OCI account allocation synchronously. In the FVTPL assets of listed securities firms, the proportion of bond assets increased from 45.8% at the end of 2023 to 49.7% at the end of the second quarter of 2024, while stocks decreased from 24.6% to 18.1%, overall stock-bond structure is in line with asset allocation trends. FVOCI equity as a proportion of financial assets continues to increase, but the asset size is still relatively small. As of the end of the second quarter of 2024, the FVOCI equity assets of listed securities firms were 347.716 billion yuan, accounting for 5.6% of all financial assets. Proprietary asset management rises, investment banking and brokerage are under pressure: 1) Brokerage business under pressure: with the equity market downturn and continuous decrease in commission rates, institutional business and wealth management continue to be under pressure, waiting for trading activity to resume to drive business recovery; 2) Decline in investment banking business: a serious decline in equity financing, stable bond underwriting size, significant challenges facing the development of investment banking business, focusing on multi-asset, overseas business, or breaking through; 3) Asset management breaks through against the trend: in the backdrop of volatility in the equity market, securities firms are increasing their layout of fixed-income products, with the proportion of fixed-income asset management increasing from 80.48% at the end of 2023 to 82.29%; 4) Investment business: adapting to market changes, increasing the allocation of bonds in FVTPL and equity in FVOCI, achieving relatively good performance, and significantly increasing the proportion of investment income in revenue. 5) Credit business: margin financing continues to contract, waiting for the recovery of investor risk appetite to drive business restart and expansion. Behind the high proportion of proprietary trading, strengthening customer service capabilities, winning in the next cycle: Leading listed securities firms are actively promoting business transformation, exploring new growth areas such as overseas business, wealth management and investment advisory, and laying out in financial technology. The proportion of overseas revenue for listed securities firms has increased to almost 10%. The proportion of overseas assets for leading securities firms is approximately 20%. Business transformation continues to progress in a weak market. Taking CITIC SEC as an example, the pace of development of overseas investment banking business in the first half of 2024 has accelerated compared to 2023, and buyer-side investment advisory has become a key focus for wealth management. The core competitiveness of investment banks lies in customer management capabilities, which requires strategic emphasis on the construction of retail and institutional business service systems in addition to traditional proprietary business with risk exposure. Risk warning: Risks of significant deviation in profit forecasts; risks of large fluctuations in the secondary market; policy risks, etc.