After all, most securities companies still rely on heaven.
Recently, Shenwan Hongyuan Group Co.Ltd(000166) Hong Kong disclosed the profit forecast for 2021. The company’s annual performance decreased by about 90% year-on-year, mainly because the expected credit loss of bond products under institutional business and trading business increased significantly in the fourth quarter of 2021. Industry insiders analyzed that this statement may mean that the company stepped on the thunder in bond investment.
Shenwan Hongyuan Group Co.Ltd(000166) Hong Kong is not an isolated industry where investment failed last year. In fact, due to the extremely differentiated structural market of A-Shares in 2021, the investment performance of many domestic securities companies is even bleak, and the investment income and profit and loss of changes in fair value have decreased significantly, resulting in slow or even significant growth of annual performance.
investment failure led to a sharp decline in performance
Shenwan Hongyuan Group Co.Ltd(000166) (Hong Kong) Co., Ltd. (00218. HK) is the flagship institution of Shenwan Hongyuan Group Co.Ltd(000166) to carry out securities business abroad through Shenwan Hongyuan Group Co.Ltd(000166) securities. It is one of the first Chinese securities institutions to develop business in Hong Kong and has been based in the Hong Kong market for more than 25 years. The group has a strong shareholder background, and Central Huijin is the controlling shareholder of the group head office.
Shenwan Hongyuan Group Co.Ltd(000166) the profit attributable to shareholders in Hong Kong in 2020 was about HK $176 million, up 29% from about HK $137 million in 2019. Unexpectedly, the profit in 2021 suddenly fell sharply.
“the expected credit loss of creditor’s rights products is the provision for credit impairment in China’s accounting standards. Generally speaking, it is a risk event, that is, ‘stepping on thunder’.” The self-employed person of a securities firm in Shanghai told the Chinese reporter of the securities firm.
In fact, Shenwan Hongyuan Group Co.Ltd(000166) the “thunder” in Hong Kong is not big. It is not uncommon for Chinese securities companies to “step on thunder” bonds of more than billions, and securities companies have recorded large losses in their own investments in bonds and stocks every year.
Generally, securities companies will disclose two financial indicators: investment income and profit and loss from changes in fair value. Investment income is self operated investment that has been cashed (sold) and also includes dividends realized by associates and joint ventures. The profit and loss from changes in fair value mainly refers to the floating profit and loss of trading positions. The sum of the two indicators is basically the overall income of securities companies’ investment in one year.
before the Spring Festival, Guodu securities issued the announcement of unaudited financial statements in 2021. The company achieved a net profit of about 1.28 yuan in 2021, a decrease of about 82% compared with 748 million yuan in 2020. From the perspective of income composition, the company’s businesses fell in an all-round way, the income from handling fees and commissions decreased sharply from 1.618 billion yuan to 212 million yuan, and the net interest income also fell from 202 million yuan to 36.2069 million yuan.
The investment business of Guodu securities also made the poor performance worse. The investment income of the company decreased from about 600 million yuan last year to – 117 million yuan. Meanwhile, the company’s profit and loss from changes in fair value remained basically unchanged. The company’s “investment income + profit and loss from changes in fair value” in 2021 decreased by about 700 million yuan compared with 2020, and it is understandable that the performance fell by 80%.
Coincidentally, Donghai securities is in a similar situation. According to the announcement of unaudited financial statements for 2021 released by Donghai securities not long ago, the company’s expected net profit in 2021 is 150 million yuan, a significant decrease of 200 million yuan compared with 350 million yuan in 2020. From the perspective of operating income, the company’s investment business has also brought a great drag on the net profit.
In 2020, the investment income of Donghai securities was about 555 million yuan, and the profit and loss from changes in fair value was about 472 million yuan, of which more than 1 billion yuan. However, by 2021, the company’s investment income will be 533 million yuan, but the profit and loss from changes in fair value will become – 487 million yuan. The difference between “investment income + profit and loss from changes in fair value” in the two years is also as high as 1 billion yuan.
According to some insiders, for securities companies, bonds account for the highest proportion of trading positions in the industry, but equity positions have a greater impact on proprietary income due to large fluctuations. In other words, the decline of self operated investment income is generally related to “stock speculation”.
“Donghai securities did a good job in self operation of stocks last year, and many markets know that from the perspective of performance, some positions may have been trapped.” The aforementioned self-employed persons of securities companies told Chinese reporters of securities companies.
small and medium-sized securities companies suffer from “self operated” dependence
“Self operation is a very core department for most small and medium-sized securities companies. Investment banking, brokerage and other businesses need a lot of investment, but self operation only needs money and a better team. Moreover, self operation has great flexibility in the bull market.” The aforementioned self-employed persons of securities companies told Chinese reporters of securities companies.
The person admitted that the cost of self operation is basically only the cost of supporting people. For securities companies, all they earn is net profit. When self operation loses money, the cost of supporting people does not decrease, so the loss has a greater impact on net profit.
Even people from medium-sized securities companies said that the performance elasticity basically comes from self-management. If self-management is done well, we can “charge three or five more Dou”. If self-management is not done well, the performance pressure will become greater.
The performance statements of some small and medium-sized securities companies also reflect this. The unaudited financial report of the parent company of Xiangcai securities in 2021 shows that the net profit in 2021 is about 695 million yuan. The company’s investment income is 343 million yuan and the profit and loss from changes in fair value is 305 million yuan. The sum of the two is basically equal to the net profit.
The same characteristics also appear in the financial statements of many listed securities companies. For example, Hongta Securities Co.Ltd(601236) in the first three quarters of 2021, the cumulative operating revenue was 5.486 billion yuan, a year-on-year increase of 62.74%, and the net profit was 1.055 billion yuan, a year-on-year increase of 10.42%. In terms of profit, the company lost 1.8273 million yuan in net interest income in the first three quarters, and the net income from handling fees and commissions was only 378 million yuan. However, the investment income of the company is as high as 1.8 billion yuan, which ensures that the profit amount of the company is at a high level.
However, over reliance on proprietary trading also makes investors worried about the investment value of some securities companies.
“The self operated income fluctuates greatly, the predictability is poor, and the self operated securities companies are not transparent enough. It is difficult for investors to judge the performance trend. Naturally, they avoid companies with a large proportion of self operated.” The aforementioned self-employed persons of securities companies frankly said.
A securities analyst also said that customer demand driven businesses (small and medium-sized securities companies) can not compete with large securities companies in terms of specialization and comprehensive services, while they can not compete with internet securities companies in terms of price and convenience. Now the trend is that the demand driven business concentration of customers (individuals / enterprises / institutions) is increasing. If a securities firm does not have strong customer service ability, it will use capital to engage in self-supporting business. After all, the enterprise will always make profits.
