|作者：||Felix LUO,Allen Feng|
|摘要：||Report title:China Brokerage Sector - 1H19 sector performance review
Analyst:Felix LUO,Allen Feng
■ Profit growth improved on average in June, especially for GF and HAITONG
■ SSE STAR MARKET debuting on July 22, likely to increase sector’s revenue by ~1.0% - 2.8%
■ Maintain NEUTRAL; top picks: CICC (3908 HK, BUY) and HTSC (6886 HK, BUY)
1H19 market review
As of the end of June, the cumulative daily average turnover of the A-share market increased by ~34% YoY. The balance of margin financing and securities lending decreased by ~1% YoY, accounting for ~2.1% of the total negotiable market capitalization. Cumulative amount of equity financing decreased by ~22% YoY, whereas cumulative amount of bond financing (excluding China Government Bonds, local government bonds, PBOC bills, interbank deposits and financial bonds) increased by ~32% YoY.
Profit growth improved on average in June
Benefiting from a better A-share market in June, net profits for major brokerages’ increased on average by ~26% YoY in 1H19, vs. ~24% YoY in 5M19. In particular, GF (1776 HK, NR) and HAITONG (6837 HK, NR) improved the most among major players (see Figure 6). This is in line with our earlier view that GF (high percentage of proprietary equity securities and derivatives held/net assets) and HAITONG (high reverse repos/net assets ratio) are likely to benefit more if equity market recovers.
SSE STAR Market to commence on July 22
As of July 10, there are 144 Science and Technology Innovation Board (STAR Market) applications with total proposed financing amount of ~RMB130.5 billion, according to Shanghai Stock Exchange (SSE). Assuming underwriting fee rate of 3%-8%, we estimate these IPOs may lead to extra income of RMB3.9-10.4 billion for the sector (excluding other related incomes), representing ~1.0%-2.8% of the sector’s total revenue in 2018. SSE announced that STAR will commence on July 22. So far, CICC and CSC (6066 HK, NR) top the STAR sponsor league table.
China brokerage sector is trading at ~0.8x 2019E P/B ratio. Maintain “NEUTRAL” rating for the sector given volatile equity markets. Our top picks remain CICC (3908 HK, BUY) and HTSC (6886 HK, BUY) from a long-term perspective, given their technology potential and good client bases. In a short term view, GF and Haitong are likely to benefit more if equity market bounces back. Key catalysts: better-than-expected macroeconomic conditions, good capital markets; Key downside risks: an economic downturn, poor capital markets.