Equity Research Financials AShare Securities Sector Trading recovered; 19 listed brokers saw May net profit up 24% Ou Yafei SFC CE No. BFN410 oyf@gf.com.cn +86 20 8757 3009 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 +86 755 8253 5901 * 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 (600837 CH) and CITIC Securities (600030 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 (600030 CH), Huatai Securities (601688 CH), China Merchants Securities (600999 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.
0 2 0 1 2 0 2 0 1 2 0 2 0 1 2 Figure 1: Monthly comprehensive income (Rmb m) 15,000 5,000 5,000 25 20 15 10 5 5 10 15 20 25 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 2,000 20 15 10 5 5 10 15 20 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 5,000 8 6 4 2 2 4 6 8 营业收入 Revenue: : 单月合计 monthly( 可比口径 ) 月度同比 Monthly 2
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) 918 32 19% 933 10 5% 1406 68% 5% Guotai Junan Securities (Guotai Junan Securities +Shanghai Securities + Guotai (42) 111% 32% 564 47% 2% 1606 55% 18% Junan Asset Management) CITIC Securities (CITIC Securities+Jintong+ Wantong) 551 44% 9% 491 47% 3 1501 26% 2 Industrial Securities (Industrial Securities+ 1240 502 872% 17% 406 Industrial Asset Management) % 42% 691 267% 36% Huatai (Huatai Securities+ Huatai Lianhe Securities + Asset Management) 397 39% 1 397 39% 16% 1024 33% 16% China Merchants(China Merchants Securities+ China Merchants Asset 300 6% 2 389 4 9% 940 48% 4% Management) Guosen Securities (143) 195% 29% 151 18% 27% 628 1% 13% Dongxing Securities 90 25% 39% 90 21% 7% 229 3% 1% Changjiang Securities (Changjiang Securities + Changjiang Underwriting) 43 48% 14 82 21% 19% 334 17% 9% Sinolink Securities (8) 118% 4 59 36% 11% 273 11% 15% Western Securities 85 215% 63% 56 51% 3% 196 37% 1 Central China Securities (186) 974% 381% 31 66% 17% 109 26% 8% Founder (Founder Securities + Credit Suisse Founder + Minzu) 31 2% 3 28 302% 37% 304 18% 9% Guoyuan Securities (39) 513% 165% 27 357% 45% 168 73% 21% Huaan Securities 2 94% 32% 25 3 26% 92 13% 16% Northeast Securities 18 193% 544% 15 4% 42% 115 5% 2% SooChow Securities (74) 418% 165% 11 75% 57% 147 2 18% Shanxi Securities (Shanxi Securities + Zhong De) (61) 205% 102% (49) 242% 65% 44 8 32% Total 2794 12% 19% 4207 24% 1 10859 2 5% 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 (601211 CH), CITIC Securities (600030 CH), Industrial Securities (601377 CH), Huatai Securities (6886 HK), China Merchants Securities (600999 CH), Guosen Securities (002736 CH), Dongxing Securities (601198 CH), Changjiang Securities (000783 CH), Sinolink Securities (600109 CH), Western Securities (002673 CH), Central China Securities (1375 HK), Founder Securities (601901 CH), Guoyuan Securities (000728 CH), Huaan Securities (600909 CH), Northeast Securities (000686 CH), SooChow Securities (601555 CH), Shanxi Securities (002500 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 700,000 600,000 500,000 300,000 100,000 日均股票成交额 Daily avg. turnover 当月 of ( the 或月化 ) month 6 4 2 2 4 环比 20. 10. 0. 10. 20. 30. CSI 沪深 300 300 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 2. 1. 0. 1. 2. 3
1 1 Figure 7: Investment banking: equity financing: monthly (Rmb m) Figure 8: Capital intermediary business: margin loans and securities lending (Rmb m) 350,000 300,000 250,000 150,000 100,000 50,000 30 25 20 15 10 5 5 10 1, 1,000,000 800,000 600,000 1 5% 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
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