The strong demand for net capital replenishment of securities companies, intensive refinancing and blood replenishment, and market concerns about the dilution of roe by refinancing have become an important factor to suppress the valuation of the sector. Listed securities companies started large-scale refinancing in 2020. The refinancing scale reached 110.8 billion yuan and 42.3 billion yuan in 2020 and 2021 respectively. At the same time, the refinancing scheme of 102.6 billion yuan is being promoted. By analyzing the investment direction of this round of refinancing and the roe characteristics of the business, we believe that the current industry refinancing is mainly invested in the capital intermediary business, which has higher roe and stronger performance robustness than the traditional capital heavy business. In the long run, refinancing is ready to improve roe.
Different from the previous fund-raising investment focusing on traditional capital heavy businesses such as financing business, stock pledge and self operation, the current refinancing investment in the industry is mainly capital intermediary businesses such as refinancing, OTC derivatives and ficc market making. 1) With the deepening of capital market reform and the improvement of market institutionalization, the capital intermediary business of securities companies has developed rapidly, the securities lending business has continued to expand under the deregulation of the system, and the derivatives business and ficc market making business have sprung up rapidly; 2) The regulatory system of securities companies takes net capital and liquidity as the core, and the risk control indicators are strictly limited. Securities companies need to supplement net capital to support business development. For example, at the end of last year, some indicators of CITIC were close to the early warning line, the business development was limited, and the stock position in trading financial assets hardly increased in the first half of the year. Therefore, the stock allotment plan was launched in the first half of the year to raise 28 billion yuan, of which 19 billion yuan was invested in capital intermediary business.
Refinancing dilutes roe in the short term and prepares for the improvement of roe in the long term. 1) The core factors of roe are leverage ratio and net profit margin. Capital intermediary business is a non directional and high profit margin business. Stable marginal income is expected to promote the leverage ratio, increase the business proportion and raise the net profit margin, so as to drive the long-term roe upward; 2) Referring to overseas investment banks, their highly leveraged businesses are in capital intermediary businesses such as derivatives and ficc market making. From the perspective of China's process, the rapid development of derivatives and other businesses is the core of this round of table expansion and leverage; 3) From the perspective of development, the long-term path for the improvement of roe of securities companies lies in the improvement of service capacity and the transformation and upgrading of light capital business. The superposition capital expansion mode is constantly improved. The continuous improvement of roe from the long-term perspective can be expected.
What is the impact of the development of capital intermediary business such as derivatives on roe?
Business perspective: Taking CICC as an example, two methods are used to calculate the roe of OTC derivatives business. 1) Statement caliber of the parent company: the roe of 2019, 2020 and 21h1 business is expected to reach 5.6%, 12.3% and 12.6% respectively; 2) Consolidated statement caliber: the roe of 2019, 2020 and 21h1 business is expected to reach 8.7%, 15.2% and 19.8% respectively. The difference mainly lies in the high leverage mark up of overseas subsidiaries. In the same period, the overall roe level of listed securities companies was only 7.0%, 8.3% and 10.1% (considering the contribution of light capital business), and the increase in the proportion of capital intermediary business will push up the overall roe.
Brokerage perspective: under neutral assumptions, we expect that by 2025, the net profit contribution of CICC and Huatai OTC derivatives business and securities lending business can be increased to 34% and 40% respectively, and the overall roe can be increased to 19.5% and 15.0% respectively. The rapid development of capital intermediary business will significantly enhance profitability and performance stability.
Investment suggestion: under the background of institutionalization, the capital intermediary business is developing rapidly. From the long-term perspective, the intensive refinancing of securities companies is preparing for the improvement of roe. The capital intermediary business depends on capital strength, professional ability and coordination ability. The head securities companies will further plant advantages, stack regulatory resources and continue to tilt to the head of the industry. We firmly recommend Huatai Securities Co.Ltd(601688) and suggest paying attention to China International Capital Corporation Limited(601995) H.
Risk warning: the capital market fluctuates greatly; Tightening of regulatory policies; Refinancing progress is less than expected
