Haitong Securities [6837.HK]

Transcription

1 July 14, 2015 Haitong Securities [6837.HK] Solid 1H Result Provides Buffer; Margin Financing Risk Manageable We believe a 36% correction of Haitong Securities (HTS) share price since early June has been overdone. Official profit guidance of RMB9.9bn-10.2bn for 1H15 already covered 72% of full-year consensus forecast. The company also highlighted that most clients decided to lower margin financing balance themselves and forced liquidation only accounted for an extremely small portion. Risk of margin financing business is under control. Meanwhile, HTS proposed share buyback plan demonstrated management s confidence in its long-term prospects. Our FY15E EPS remains largely unchanged while FY16E EPS is cut by 10% to reflect more conservative assumptions for margin financing and investment banking business. Reiterate BUY with a Gordon growth model-based target price of HK$27.30 (2.36x 2015E PBR (previous: 2.97x), beta 1.37, cost of equity 9.96%, medium-term ROE 14%). Investment Highlights Limited risk in margin financing business. According to the company, margin financing balance has fallen from RMB120bn to >RMB80bn. About 99% of the reduction was determined by clients themselves and only a very small portion was forced liquidation. Therefore the business risk should be very limited. The company s overall maintenance margin level was still >230%. 1H net profit surged >240% year-on-year. Apart from strong market turnover and high growth of margin financing, we believe net investment gains are also a key driver. Net investment gains accounted for 52% of HTS pre-tax profit in Q1. China Securities Sector BUY Close: HK$15.64 (July 13, 2015) Target Price: HK$27.30 (+75%) Price Performance (HK$) (HK$ million) Jul14 Sep14 Nov14 Jan15 Mar15 May15 Jul15 Turnover (RHS) Price (LHS) Market Cap US$35,497m Shares Outstanding 11,500m Easy to meet full-year forecasts. Our 2015E net profit of RMB14bn (in line with consensus) implies 2H15 net profit at RMB4bn and a very small contribution from net investment gains. We may raise our earnings forecasts when we have better earnings visibility after the release of July and August operating data. Proposed share buyback to protect downside. The company proposed share buyback for H-shares (max. HK$17.18 per share) and A-shares (max. RMB18.80 per share) with a cap of 10% issued shares should help limit its downside. It also shows management s confidence about the long-term outlook. (Note: The proposal requires shareholders approval.) Auditor Deloitte Free Float 82% 52W range 3M average daily T/O Major Shareholder Sources: Company, Bloomberg HK$ US$174.3m Bright Food (Group) (3.50%) Y/E Dec E 2016E Turnover (RMB m) 10,493 12,572 22,925 41,082 46,862 Recurring net profit (RMB m) 3,038 4,035 7,711 14,016 16,071 Adjust net margin (%) Recurring EPS (RMB) % Change (16) PER (x) PBR (x) ROAA (%) ROAE (%) Sources: Company, CGIHK Research Wong Chi Man Head of Research (852) cmwong@chinastock.com.hk 1

2 Key financials Haitong Securities (6837.HK) Income Statement (RMB'000, except for per share amount) Year ended 31 Dec E 2016E Equities 3,933,956 2,894,924 4,228,623 5,939,819 13,998,897 14,737,080 Investment banking 960, , ,777 1,309,095 1,778,855 1,957,782 Asset management 985, , ,324 1,202,203 1,332,168 1,447,500 Futures/derivatives 393, , , , , ,040 Others 293, , , , , ,534 Commission and fee income 6,566,781 5,213,180 6,751,188 9,516,170 18,085,776 19,245,936 Interest income 2,553,171 2,878,805 3,670,965 7,699,971 14,182,434 18,685,116 Net investment gains 1,506,926 2,404,312 2,150,038 5,708,662 8,813,326 8,931,000 Total revenue 10,626,878 10,492,789 12,572,191 22,924,803 41,081,536 46,862,051 Other income and gains 233, , , , , ,000 Total revenue and other income 10,860,374 10,743,347 12,802,734 23,666,866 41,981,536 47,812,051 Staff costs (2,319,953) (2,142,298) (2,621,465) (4,131,308) (6,460,262) (8,308,280) Commission and fee expenses (1,044,243) (828,334) (848,704) (1,295,519) (2,950,140) (3,254,192) Interest expenses (459,796) (704,404) (1,484,370) (4,340,189) (8,250,429) (8,562,770) Others (2,809,130) (3,006,939) (2,510,387) (3,646,790) (5,338,192) (5,930,614) Operating expenses (6,633,122) (6,681,975) (7,464,926) (13,413,806) (22,999,024) (26,055,856) Operating profit 4,227,252 4,061,372 5,337,808 10,253,060 18,982,512 21,756,195 Share of profits of associates 72,912 65, , , , ,461 Non-recurrent items Income before tax 4,300,164 4,127,238 5,454,748 10,420,394 19,116,253 21,919,656 Income tax expense (1,018,167) (874,980) (1,173,754) (2,301,371) (4,205,576) (4,822,324) Minority interests (178,963) (214,716) (245,970) (408,400) (894,641) (1,025,840) Net income 3,103,034 3,037,542 4,035,024 7,710,623 14,016,037 16,071,492 Recurring net income 3,103,034 3,037,542 4,035,024 7,710,623 14,016,037 16,071,492 EPS (RMB) Recurring EPS (RMB) DPS (RMB) A-share average daily turnover 172,807, ,492, ,668, ,014, ,000,000 1,000,000,000 Brokerage market share of Haitong (%) Net commission rate of Haitong (%) Margin financing balance 3,916,142 7,049,196 19,848,211 57,169, ,302, ,700,201 Staff cost-to-income (%) Cost-to-income (%) Cost-to-income (ex-impairment) Growth Rates: Commission and fee income -22% -21% 30% 41% 90% 6% Interest income 55% 13% 28% 110% 84% 32% Net investment gains 40% 60% -11% 166% 54% 1% Total revenue and other income -4% -1% 19% 85% 77% 14% Operating profit -14% -4% 31% 92% 85% 15% Recurring net income -16% -2% 33% 91% 82% 15% Recurring EPS -16% -16% 33% 91% 51% 15% Margins and Ratios: Adjusted operating margin 43.8% 42.5% 49.9% 55.0% 60.5% 59.4% Adjusted net margin 36.0% 36.3% 41.8% 47.0% 49.9% 48.8% Effective tax rate 24% 21% 22% 22% 22% 22% Sources: Company data, CGIHK Research estimates 2

3 Key financials Haitong Securities (6837.HK) Balance Sheet (RMB'000, except for per share amount) Finance Ratios As at 31 Dec E 2016E E 2016E Financial assets 34,657,677 56,908, ,149, ,576, ,376,461 PER(x) Advances to customers 11,338,687 26,531,096 64,883, ,802, ,700,201 EPS grow th (%) Others 18,685,132 20,019,422 41,889,579 67,148,384 77,613,112 Yield (%) Cash held on behalf of customers 31,460,515 33,777,588 62,592, ,617, ,641,200 Payout ratio (%) Bank balances and cash 20,539,726 18,809,405 23,111,153 14,384,005 14,345,395 PBR(x) Total current assets 116,681, ,046, ,626, ,529, ,676,369 Total asset/equity (x) Non-client asset/net asset (x) PPE, net 1,134,459 1,171,604 1,210,145 1,177,492 1,206,180 ROAA (%) Financial assets 3,854,089 5,074,255 9,024,602 20,069,816 22,019,816 ROAE (%) Others 4,811,819 6,831,580 38,761,337 46,881,054 59,535,977 Total non-current assets 9,800,367 13,077,439 48,996,084 68,128,362 82,761,973 Revenue breakdown (%) Equities Total assets 126,482, ,123, ,622, ,657, ,438,342 Investment banking Asset management Accounts payable to brokerage clients 36,956,823 40,429,567 80,766, ,353, ,042,800 Futures/derivatives Financial assets sold under repo 16,040,561 26,111,914 59,807,864 81,735,492 85,048,146 Others Due to banks and other financial institutions 10,776,314 6,916,395 34,077,574 50,302, ,700,201 Commission and fee income Others 2,127,847 13,200,026 46,471,975 64,790,605 56,551,802 Interest income Total current liabilities 65,901,545 86,657, ,124, ,182, ,342,950 Net investment gains Bank and other borrowings - - 4,537,684 11,000,000 15,000,000 Others 149,963 18,360,543 54,696,006 64,363,167 74,090,667 Total non-current liabilities 149,963 18,360,543 59,233,690 75,363,167 89,090,667 Total liabilities 66,051, ,018, ,357, ,545, ,433,617 Shareholders' equity 58,679,683 61,506,991 68,364, ,317, ,184,473 Minority interests 1,750,913 2,598,167 3,899,772 4,794,413 5,820,253 Book value per share (HK$) Dupont analysis (as % of average total assets) Equities 2.6% 2.9% 2.3% 3.2% 2.5% Investment banking 0.7% 0.5% 0.5% 0.4% 0.3% Asset management 0.8% 0.5% 0.5% 0.3% 0.2% Futures/derivatives 0.4% 0.3% 0.2% 0.1% 0.1% Others 0.2% 0.4% 0.3% 0.1% 0.1% Commission and fee income 4.6% 4.6% 3.6% 4.1% 3.3% Interest income 2.6% 2.5% 3.0% 3.2% 3.2% Net investment gains 2.1% 1.5% 2.2% 2.0% 1.5% Other income and gains 0.2% 0.2% 0.3% 0.2% 0.2% Total revenue and other income 9.5% 8.7% 9.1% 9.5% 8.2% Operating expenses -5.9% -5.1% -5.1% -5.2% -4.4% Operating profit 3.6% 3.6% 3.9% 4.3% 3.7% Income tax expense -0.8% -0.8% -0.9% -1.0% -0.8% Recurring net income (ROAA) 2.9% 2.9% 3.1% 3.4% 2.9% Leverage (x) Non-client asset/net asset (x) ROAE 5.9% 6.7% 11.9% 16.0% 14.3% Sources: Company data, CGIHK Research estimates 3

4 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Figure 1: Rolling Forward PBR Range Rolling forward PBR (x) Average +1 Standard deviation -1 Standard deviation Sources: Bloomberg, CGIHK Research Figure 2: Rolling Forward PER Range Rolling forward PER (x) Average +1 Standard deviation -1 Standard deviation Sources: Bloomberg, CGIHK Research 4

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Explanation on Equity Ratings BUY SELL HOLD : : share price will increase by >20% within 12 months in absolute terms share price will decrease by >20% within 12 months in absolute terms : no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL Copyright Reserved No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited. China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459 Room , 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen s Road Central, Sheung Wan, Hong Kong. General line: