CITICS 17 Financial Performance Presentation March, 3 rd 18
1 Chinese Securities Industry Overview CITICS Financial Performance 3 CITICS Business Highlights
Content 1 Chinese Securities Industry Overview 3
Overview of Chinese Capital Market in 17 1 17 Chinese Major Stock/Bond Indices Average Daily Turnover in Equity Market Stock Indices Shanghai Composite Index +6.56% Shanghai & Shenzhen 3 Index +1.78% New OTC Market-making Index -1.65% GEM Composite Index -15.3% 1 Average 39.8 Bn 15 Average 1,76.5 Bn 16 Average 533.7 Bn 17 Average 7 Bn, 1% Hang Seng Index +35.99% Bond index China Bond Wealth Index -.59% 3 Interest rate hikes with wider spread Margin Finance and Stock Repo all up 3-month SHIBOR:(+163BP) 6. 1-year Treasury:(+78BP) 5-year AAA Corporate:(+13BP) 5.. 3.. Source:Wind,SAC,Internal Data Margin Finance 9.3% Stock Repo 69% 1, 1,17 1, 1,6 1,6 939 1, 8.6 8 6 5.6 55.3 1 15 16 17 1 15 16 17
Overview of Chinese Capital Market in 17 1 Equity Financing Size Debt Financing Size RMB Trillion 3 1 Equity Financing 15% RMB Trillion Debt Financing % IPO 33% Corporate Bond 6% SEO 19%.1 1.9 15 1.7 1.8 11.5 11.9.9 1 6. 5 1 15 16 17 1 15 16 17 3 AUM of Securities Industry AUM of Fund Industry RMB Trillion RMB Trillion 1% 6% 15 1 5 17. 17.3 8. 11.9 1 End 15 End 16 End 17 End 1 11.6 6.7 8. 9. 1 End 15 End 16 End 17 End Source:Wind, SAC, AMAC 5
Industry Assets: Own Assets up, Leverage stable 1 Total Assets Total Liabilities RMB Trillion RMB Trillion 1 8 6 6. 5.8 6.1 6.1.1 1.1 1.7 1..1 3..1 1. 1. 1.5 1. 1.1.6.5..3 5.1 1..5.9.6 1.1 1.6.6 1...9.7 3. 1 13 1 15 16 17 1 13 1 15 16 17 1 8 5..1.3 Own Assets Client Assets Own Liabilities Client Assets 3 Net Assets Leverage Ratio RMB Trillion Multiples 1 1 1.5 1.6 1.85.9.5.5 1 13 1 15 16 17 5.5..8. 3.5 3.3 1.6.1 3. 3..7.8 1 13 1 15 16 17 Adjusted Leverage Total Leverage Source: Internal, SAC 6
Industry Profitability:Economics of Scale Continue Fading 1 Operating Income Net Income 8 6 5% 575 6 38 311 13 159 1 13 1 15 16 17 3 5 15 1 5 8% 5 97 13 113 33 1 13 1 15 16 17 3 ROE Profit Margin % 6% %.9% 6.1% 11.8% 19.9% 8.1% 6.5% % % 5% 8% 37% 3% 38% 36% % 1 13 1 15 16 17 % 1 13 1 15 16 17 Source: SAC, Internal 7
Content CITICS Financial Performance 8
1. Financial Indicators (1/) 1 Operating Income Net Income 1 75 5 5 11.7 16.1 9. 56. 38. 1% 3.3 5 3 1. 5. 11.3 19.8 1. 1% 11. 1 13 1 15 16 17 1 13 1 15 16 17 3 ROE Profit Margin (1) 5%.9% 6.% 1.18% 16.6%.6 percentage points 7.36% 7.8% 1% 8% 6% % % 36% 3% 39% 37% 31% 33% % 1 13 1 15 16 17 % 1 13 1 15 16 17 Note 1:Profit margin was calculated without income from Commodities after 15 9
1. Financial Indicators (/) 1 Assets and Liabilities 7 6 5 3 1-8 379 Total Assets Total Liabilities Redlines items are Security Deposit 616 597 7 5 7 11.8 15.5 13. 99.9 1 End 15 End 16 End 17 End 66 Net Assets 3 Leverage Ratio 15 1 5 99.1 139.1 1.7 19.8 Multiples 5..5. 3.5 3..7 3.7.3 3.3.1.1 3. 3. 1 15 16 17.5 1 15 16 17 Total Leverage Adjusted Leverage Sources: Annual Report 1
. Revenue Mix Fee-based income down 1%, Capital-based up 56% Revenue Movement 1% 9% 1% 1. 1. 1. 11.8 1. Fee-based Capital-based (Net) 9. 8% 7% 6% 7% 61% Feebased Business 3 15 5.1 1.5 16 17 8. 6.... Brokerage 5.. Investment Banking 6. 5.7 Asset Management 5..3 3.6 1.61.3 Other Financing Investment 5% 16 17 % 3% % 1% 6% 39% Capitalbased Business 15 1 5 8.8 56% 13.7 % 35% 3% 5% % 15% 35% 8% Fee-based 16% 13% Revenue Mix 19% 16% Capital-based (Net) 11% 1% 15% 7% % 16 17 16 17 1% 5% % Brokerage Investment Bank Asset Management 5% % Other Financing Investment Note: Income from Commodities is removed 16 17 Source: Internal data Note: financing cost is reduced from income of Financing and Investment 11
3. Cost Analysis 1 Cost-to-Income Ratio 1% 5% 63% 6% 7% 36% 7% 73% 5% 39% In A-share report, our costto-income ratio was 39% as of the end of 17, down by 6 percentage points y-o-y % 1 15 16 17 H-share Report A-share Report Compensation-to-Income Ratio In A-share report, our 1% compensation ratio was 8% as of the end of 17, down 5% 3% % % 6% 3% 3% 8% 1% by percentage points y-o-y % Sources: Annual Report 1 15 16 17 H-share Report A-share Report Note: 1. In H-share report, operating expenses include expenses of commission, fees and interest which are not included in A-share report. In H-share report, operating income is gross income, while in A-share report, operating income is net of expenses of commission, fees and interest. 1
. Domestic Competition Landscape: Lead in Revenue and Profit 16 年前 9 月八大券商营业收入比较 17 Top Five Revenue ( 亿元 ) 17 Top Five Profit 1 5 3.3 8. 3 3.8 1.5 1.1 1 CITICS Haitong Guojun Guangfa Huatai 15 1 5 11. 9.9 9. 8.6 8.6 CITICS Guojun Huatai Haitong Guangfa 3 17 Top Five Total Assets 16 年 9 月末八大券商归属净资产比较 17 Top Five Net Assets ( 亿元 ) 8 6 65.6 53.8 31.6 39.1 355.3 CITICS Haitong Guojun Huatai Guangfa 19.8 13.1 117.5 87.6 8.9 CITICS Guojun Haitong Huatai Guangfa 5 17 Top Five ROE 6 17 Top Five Leverage Ratio 15. 3.3 1.75 1.55 9.5 3.6 1. 7.57 3.5 3.6 3.38 5. 7.8 1 15 1 5. Huatai Guangfa Guojun CITICS Haitong Source:Annual Report, Performance Announcement Huatai Haitong CITICS Guangfa Guotai Note: Leverage ratio is estimated data 13
5. Overseas Benchmarking: Narrow the gap with Goldman Sachs 1 Benchmarking in Total Assets and Net Assets Benchmarking in Revenue and Profit GS total assets was 13 times of CITICS in 6, the gap is narrowed to 9.6 in 17; Net assets gap was 6 times in 6, now is 3.6 GS revenue was 56 times of CITICS in 6, the gap is narrowed to.8 in 17; Profit gap was 31 times in 6, now is.6 8 Total Assets 6 6,55 5,99 65.6 63.6 6 17 GS CITICS 537 Net Assets 317 19.8 1.3 6 17 GS CITICS Revenue 9. 9.7 3.3 5. 6 17 GS CITICS 15 1 5 Profit 73. 5.9. 11. 6 17 GS CITICS 3 Business Layout Overseas Business Capital-based business Product-centric Equity Business Volatile to Market Homogenous Competition Client-centric Equity/Debt Diversified Less Volatile Differentiation Establish GS-like business model Cover most product types Diversify income sources Improve risk resilience Market-making is still small. Capital-based business will be the focus in the future. Exchange, commodities, credit derivatives and structured products are still far behind Source: SAC,WIND,Annual Report Overseas business starts from zero and continues to grow After acquisition of CLSA, the client base and overseas distribution channel have been expanded to 17 regions and countries and branches globally Synergy has been recognized in areas such as investment banking, brokerage, research etc. Overseas income grows rapidly CLSA s income accounts for 15% of total income in 17 GS overseas income accounts for 1% of its total income, which is still far ahead of CITICS Regional distribution of overseas revenue is centralized and shall be spread out 1
Content 3 CITICS Business Highlights 15
1. Investment Banking:Maintain the Leading Position 1 No.1 in Equity Underwriting Rank Underwriter Amount (RMB Bn) Market Share 1 CITICS.98 1.9% CICC 11.5 11.76% 3 China Securities 19.7 1.71% Guotai Junan 13.66 7.99% 5 Huatai 113.7 6.33% No. 1 in Debt Underwriting Rank Underwriter Amount (RMB Bn) Market Share 1 CITICS 511.63.9% China Securities 387.66 3.5% 3 China Merchant 356.8.98% Tebon Securities 67..% 5 Guotai Junan 59.75.18% 3 No.1 in IPO Underwriting A-share Asset Restructuring 5 China-related M&A Rank Underwriter Amount (RMB Bn) Market Share Rank Advisor Asset Size (RMB Bn) Market Share Rank Advisor Market Share 1 CITICS.6 9.% Guangfa 17. 7.75% 3 China Securities 1. 6.59% Guosen 1.1 6.58% 5 Haitong 1.5 5.69% 1 CITICS 139.8 16.1% China Securities 11.1 1.78% 3 CICC 9. 1.69% Huatai 63.7 7.39% 5 Guotai Juan 57.3 6.65% 1 CICC 17.8% Morgan Stanley 8.97% 3 Goldman Sachs 8.1% CITI 7.56% 5 CITICS 7.8% Source:Bloomberg, Wind, Internal 16
. Brokerage:Transforming to Wealth Management 1 Stable Market Share 3 Morgan Stanley Revenue Mix in 17 No. in Turnover: In 17, Our Stock/Fund Turnover was RMB 13.5 Trillion with a market share of 5.69%, ranking No. in industry; Revenue from commission accounts for 5.39% of all, also ranking No. in industry Asset under Custody continue to grow: In 17, AUC reached RMB 5 Trillion, an 18% y-o-y growth Asset Manage ment Investm7% ent Banking 15% Sales & Trading 3% Other % Wealth Manage ment % IB 3% Trading 5% Commissi on 1% Interest % Other % Account Manage ment Fee 56% Abundant Client resources:in 17, number of QFII clients reached 138 and RQFII reaches 5 Revenue Mix Wealth Management Revenue Mix Descending Commission Rate Wealth Management Objectives 1 8 6 Industry 7.88 7.96 6.91 5.1 6.8 6.5 5.7. 3.58.7 3.75 3.39 CITICS? 1 13 1 15 16 17 Future Differentiation and value creation Higher fee The quality and the capabilities of team become the main driver of profit making Client representatives customize wealth management plans based on client s risk preference Use AI technology to aid asset allocation Provide one-stop shopping services to realize asset class allocation Financial Services: investment, lending, saving, account management etc. Extended financial services:heritage tax planning family trust etc. Source: Internal Data 17
3. Asset management: Lead in AUM 1 Business Advantage Total AUM and Active AUM 3 AUM by China AMC Fully licensed:citics Asset Management is fully licensed to manage corporate annuity, Social Security Fund domestic investment, insurance fund etc. CITICS:By 17, Total AUM reached RMB 1.67 Trillion with market share of 1.1%; Active AUM reached RMB 589 billion; Both are ranked No.1 in industry 1 st in Total AUM 3, 1,91 1,667 1,5 755 1,71 1 End 15 End 16 End 17 End 1 st in Active AUM 8 61 589 1 178 1 End 15 End 16 End 17 End Asset Management Fee 1, 1,6 1, 86 6 58 1 End 15 End 16 End 17 End 5 AM Fee by China AMC China AMC:By 17, AUM of Institutional Business reached RMB 71 billion, among 1 st tier in industry.8 1.8.1. 5 3.. 3.9 3. 1 15 16 17 1 15 16 17 Source: Internal Data 18
.1 Capital-based Business: Optimized Structure 1 17 Capital-based Income Optimized Asset Allocation 17 16 Δ % Total Income 13.7 8.8.9 56% Interest Income 8.3 6.95 1.37 % Investment Income 13.3 8.6.7 55% Financing Cost -7.87-6.86-1.1 15% Exchange gain/loss -.5.1 -.17-13% 6 5 3 1 (1) () (3) 7 More allocation to financing business 15 (1) Less allocation to fixedincome business (5) Financing Option Delta Liquidity Fixed-income 3 Optimized Liabilities Improved ROA 18 15 1 9 6 3 Debt financing cost reduced.66%.37% 138. 118.7 75. 3.59%.7% 75. 5% 3% 1.% 1.% 8.% 6.%.%.7% 5.69% 16 17 6.5% 9.6% Debt Instrument Interbank Repo 17 16 %.%.% ROA ROAC Source: Internal Data 19
. Fixed-Income Business Layout Sales Trading 6% % No. 1 Interest Rate Bond Sales (Market Share).7% 5.6%.3% 15 16 17 6 5 No.1 in Debenture Bond Sales (Amount) 5.1 1. 69.6 15 16 17 6% % % % -% -% -3.% China Bond Index 1.5% Average Bond Fund Return.3% CITICS Trading New Business Market-making Risk Management ABS Integrate research and investment; Full coverage of industrial chain; Properly manage business and risk. China Bond Connect Cross-Border TRS First securities company to engage fixed-income cross-border TRS Complete 6 contracts in total FX Application Hold leading positions in many trading markets, e.g. Interbank market, debt market, money market, derivatives market etc. Won the Excellent Award by the Shanghai Stock Exchange Established risk management system for market risk, credit risk and operation risk Liquidity Support Daily financing amount of 39bn Credit Research team build-up Recruit talents Market-making license Cover over 1 foreign investors 17 Billions Turnover; No. 1 in industry Regulatory communication; Platform build-up; Streamline FX business needs Model design. as bond dealer, bond investor and product innovator. Smooth the dialog among research, trading and risk management Strengthen enterprise credit field research Source: Internal Data
.3 Equity Derivatives 1 OTC Derivatives Equity Financing 3 Market-Making Customer Needs Serve financial institutions, hedge fund, enterprise, HNWI and retail clients. Offer client risk management solutions, wealth management, global asset allocation and enterprise capital operation. Structured Products Serve shareholders, senior executives and ESOP(Employee Stock Ownership Program). Offer clients existing equity solutions and financing instruments Equity Collateralized Financing Offer market-making services for exchange fund products and options. Offer liquidity market-making and arbitrage strategies for crossmarket, cross-assets and crossproducts activities. Exchange option contract market-making Instruments & Products OTC Option Flow Trading Corporate Risk Management Solution Equity Incentive Financing Mezzanine/Cross-border Financing ETF/Money Market Market- Making Other Market-Making Strategies OTC derivative trading amount over1bn The market share of Stockpledged financing was 9.% ranking 1 st Core market-maker of 5ETF ranking 1 st. Stock-pledged Repo 5 Option Delta 6 TRS 7 Market-making 1 5 39. +98% 78. 1 6.8 times. 17.1 1 6 1. -36% 6. 1 5 5.1-1%. 16 17 16 17 16 17 16 17 Source: Internal Data 1
. Financing Business 1 17 Top Five in Margin Finance Balance 17 Top Five in Stock Repo Balance 1 1 1.% 8 6.91% 6.5% 5.73% 5.56% 5.6% 71 6 59 57 56 1 8 6 9.% 9.1% 8.9% 78 77 75 5.3%.5% 6.% 38 CITICS Guojun Huatai Galaxy Guangfa Balance Share CITICS Haitong Guojun Huatai Guosen Balance Share.% 3 Descending Margin Fee Rate Interest Income Continue Growing 9.% 8.% 8.6% 8.3% 8.15% 8.% 7.69% 6. 5...85.89 3.38 7.% 6.% 5.% 7.56% 6.89% 5.% Margin Finance Stock Repo 15 16H1 16 17 3.. 1.. Margin Finance. Stock Pledged Repo 16 17 Source: Internal Data
5. GoldStone: Profit Continue Growing Goldstone Financial Performance from 15-17 Revenue Profit 5 3. 3.8 1.3 15 16 17 1.7 1.9. 15 16 17 Push for Business Transformation Two subsidiaries reform Goldstone becomes the platform of PE fund investment CITICS Investment becomes the principal investment unit Continue fund-raising and investing In 17, goldstone established multiple industry funds and the AUM in total reached RMB 6 billions In 17, CITICS investment completed 8 new investments with total amount of RMB.3 billions Business strategy In 18, goldstone will accelerate investing pace and expand overseas investment CITICS Investment will strive to keep the leading position in AUM, research and investment return in peers Source: Internal Data 3
6. International Expansion CITIC CLSA Completed full integration Restructured US Business, optimized overhead, improved financial return 17 CITIC CLSA Business Highlights 6. Revenue +15% 5.11.8 Profit +.8 times.5 Help CITICS to gain the best Asia Investment Bank by IFR 3..1 Best Broker in Research and 16 17 16 17 Sales by Asia Money KVB Completed the conversion from HK GEM board to HK Main Board International Credit Rating Improved Moody s maintained our Baa1 rating and changed the outlook from negative to stable; S&P raised from BBB to BBB+ with stable outlook; CITICS is the only Chinese securities company that has two BBB+ ratings Source: Internal Data
7. Comprehensive Risk Management Framework Credit Risk Operation Risk 1 Risk Exposure of Bond Investment (Onshore) Management Framework 3 Control Procedures 1 8 6 Sovereign and AAA accounted for 6% of holding positions by 17 5.6 7.8 76.5 35.6 1 15 16 17 Sovereign AAA AA A A-1 Other Credit Risk Management system includes: Due Diligence, Internal Credit Rating, Limit Setting & Monitoring Assets over Liability 17 16 Margin Finance 3% 77% Outright Repo 16% 8% Stock Pledged 6% 73% Market Risk To Prevent Risk via New Product Approval Procedure, review of workflow & design of control steps; To Mitigate Risk via Incident Reporting, Mitigation Action Recommendation and Tracking To Flag Potential Risk via day-to-day KRI Monitoring To Promote Risk Awareness via trainings and case study VaR 5 Stress Test Interest VaR Equity VaR RMB Million Exchange VaR Commodities VaR 5 6 3 Overall Portfolio VaR 15 11 95 1 5 31/1/1 31/1/15 31/1/16 31/1/17 Source: Internal Data Note: VaR is calculated for parent company only and excludes holdings of restricted shares Stress Test Value Stress Test Value/Net Capital 8% 6.16% 6% 3 % 3.5% 3.61% 3.5% % 1 % 1/1/31 15/1/31 16/1/3 17/1/9 5
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