A-Share Securities Sector

Transcription

1 Equity Research Financials AShare Securities Sector Trading recovered; 19 listed brokers saw May net profit up 24% Ou Yafei SFC CE No. BFN GF Securities (Hong Kong) Brokerage Limited 2930/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong Contribution from the GF Ashare research team: Chen Fu * chenfu@gf.com.cn * Please note that Chen Fu is not a registered licensee with the Securities and Futures Commission of Hong Kong and is not allowed to conduct regulated activities in Hong Kong. May recurring net profit up 24., 5M18 figure down 10.5% 19 of the A share listed securities firms have released their May operating results. Combined recurring net profit amounted to Rmb4.21bn, up 24., while the cumulative figure for 5M18 represented a decline of 10.5%. Combined revenue totaled Rmb10.86bn, up 19.9%, while the 5M18 cumulative figure fell 4.6%. earnings growth in May was mainly due to rebounded trading on both the Shanghai and Shenzhen stock exchanges and a recovery in the equity market. May results still varied significantly between firms. Among the listed brokers with the highest monthly net profit were Haitong Securities ( CH) and CITIC Securities ( CH), which earned Rmb930m and Rmb490m respectively, representing growth of 100.4% and 46.6%, while 5M18 net profit represented changes of 4.9% and 29.8%. Market turnover rebounded, equity market recovered Brokerage: thanks to a larger number of trading days in May, total market turnover in Shanghai and Shenzhen amounted to Rmb8.9trn, up 9.. Equity investment funds recorded a daily turnover of Rmb406.4bn, down 10.8%. Prop trading: both the CSI 300 (+1.2%) and ChiNext index (3.4%) demonstrated better performance than the previous month. The CSI Aggregate Bond Index edged up 0.2% during the month, weaker than the growth of 1.3% in April. Investment banking: the value of equity financing amounted to Rmb44.09bn in May, down 39.9%. Capital intermediary: the balance of outstanding margin loans and securities lending stood at Rmb989.18bn, up 0.5% and 13.7%. Investment highlights: Earnings divergence to continue, CDR a catalyst The sector is trading at 1.37x historical P/B and 1.27x E forward P/B, which is around the historically low level. In addition, institutional investors exposure to the sector has also dropped to a low level (1Q18 equity fund position: 0.5%, underweight by 3.5%). The implementation of CDRs requires the security firm in question to have comprehensive business strength, internationalized business operation capabilities and a complete client servicing industry chain. We expect CDRs to mainly benefit leading security companies profit. Sectorwise, industry concentration has continued to increase, and the revenue contribution of channel businesses has continued to decline; individual brokers earnings are increasingly divergent industry leaders with a balanced earnings structure and comprehensive competitiveness are standing out. Currently, sector valuation is at a historically low level with larger brokerages trading at 1x1.4x P/B. Institutional investors are holding a relatively low positon in the sector, while China Securities Finance has increased its stakes over the past two quarters. Amid diverging earnings, CDRs and the OTC option business should drive leaders business growth. We suggest watching leading companies with historically low valuations such as CITIC Securities ( CH), Huatai Securities ( CH), China Merchants Securities ( CH) and Haitong Securities (6837 HK). Risks Regulations continuing to toughen; market turnover declining further as strengthened financial deleveraging causes market liquidity to tighten; continued weakness in the bond market resulting in lowerthanexpected fixed income investment returns. This is a summary of a report originally written in Chinese. Please contact us for more information of the original report. The Chinese version shall prevail in the event of any discrepancy between the two versions.

2 Figure 1: Monthly comprehensive income (Rmb m) 15,000 5,000 5, 综合收益 Monthly : 单月合计 comprehensive ( 可比口径 ) income 月度同比 Monthly Figure 2: Monthly net profit (Rmb m) 12,000 8,000 6,000 4,000 2, 净利润 Net profits: : 单月合计 monthly ( 可比口径 ) 月度同比 Monthly Figure 3: Monthly revenue (Rmb m) 25,000 20,000 15,000 5, 营业收入 Revenue: : 单月合计 monthly( 可比口径 ) 月度同比 Monthly 2

3 1 1 Figure 4: 19 Ashare listed securities firms operating performance in May Rmb m Comprehensive income Net profit Revenue Cumulative May Cumulative May May Cumulative Haitong Securities (Haitong Securities + Haitong Asset Management) % % % 5% Guotai Junan Securities (Guotai Junan Securities +Shanghai Securities + Guotai (42) 111% 32% % 2% % 18% Junan Asset Management) CITIC Securities (CITIC Securities+Jintong+ Wantong) % 9% % % 2 Industrial Securities (Industrial Securities % 17% 406 Industrial Asset Management) % 42% % 36% Huatai (Huatai Securities+ Huatai Lianhe Securities + Asset Management) % % 16% % 16% China Merchants(China Merchants Securities+ China Merchants Asset 300 6% % % 4% Management) Guosen Securities (143) 195% 29% % 27% 628 1% 13% Dongxing Securities 90 25% 39% 90 21% 7% 229 3% 1% Changjiang Securities (Changjiang Securities + Changjiang Underwriting) 43 48% % 19% % 9% Sinolink Securities (8) 118% % 11% % 15% Western Securities % 63% 56 51% 3% % 1 Central China Securities (186) 974% 381% 31 66% 17% % 8% Founder (Founder Securities + Credit Suisse Founder + Minzu) 31 2% % 37% % 9% Guoyuan Securities (39) 513% 165% % 45% % 21% Huaan Securities 2 94% 32% % 92 13% 16% Northeast Securities % 544% 15 4% 42% 115 5% 2% SooChow Securities (74) 418% 165% 11 75% 57% % Shanxi Securities (Shanxi Securities + Zhong De) (61) 205% 102% (49) 242% 65% % Total % 19% % % Sources: Company data, GF Securities Development & Research Center Note: 1. Data are comparable, recurring and attributable to parent companies; 2. In the order of declining May net profit; 3. Listed companies mentioned: Haitong Securities (6837 HK), Guotai Junan Securities ( CH), CITIC Securities ( CH), Industrial Securities ( CH), Huatai Securities (6886 HK), China Merchants Securities ( CH), Guosen Securities ( CH), Dongxing Securities ( CH), Changjiang Securities ( CH), Sinolink Securities ( CH), Western Securities ( CH), Central China Securities (1375 HK), Founder Securities ( CH), Guoyuan Securities ( CH), Huaan Securities ( CH), Northeast Securities ( CH), SooChow Securities ( CH), Shanxi Securities ( CH). Figure 5: Brokerage business: daily turnover of each month (Rmb m) Figure 6: Prop trading business: returns of CSI 300 and CSI Aggregate Bond Index 700, , , , ,000 日均股票成交额 Daily avg. turnover 当月 of ( the 或月化 ) month 环比 CSI 沪深 return: 收益率 monthly 当月 ( 或月化 ) CSI 中证全债收益率 Aggregate Bond 当月 index ( 或月化 return: ) monthly

4 1 1 Figure 7: Investment banking: equity financing: monthly (Rmb m) Figure 8: Capital intermediary business: margin loans and securities lending (Rmb m) 350, , , , ,000 50, , 1,000, , , % 5% 1 15% 2 25% 股权融资额 Equity financing: 当月 monthly ( 或月化 ) mom 融资融券余额 Outstanding margin mom loans and securities lending 4

5 Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months Company ratings Buy Stock expected to outperform benchmark by more than 15% Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15% Hold Expected stock relative performance ranges between 5% and 5% Underperform Stock expected to underperform benchmark by more than 5% Sector ratings Positive Sector expected to outperform benchmark by more than 1 Neutral Expected sector relative performance ranges between 1 and 1 Cautious Sector expected to underperform benchmark by more than 1 Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report. 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