Affected by changes in the market environment, the brokerage sector, as the “wind vane of the stock market”, has recently suffered a “double drop” in performance and valuation.
The first quarterly report of A-share listed securities companies was disclosed today. According to choice statistics, the total operating revenue of 40 companies fell year-on-year in the first quarter, accounting for 83%, and the net profit of 42 companies with negative growth year-on-year in the first quarter, accounting for more than 87%.
Among them, the head securities companies also failed to survive. For example, Haitong Securities Company Limited(600837) , China Merchants Securities Co.Ltd(600999) , the net profit in the first quarter decreased by 58.53% and 42.99% respectively year-on-year. was mainly dragged down by the self operated investment business interviewed insiders said that in recent years, the business structure of securities companies has been optimized and the “contribution” of brokerage business has decreased. However, the correlation between the performance of securities business and the market is still high, especially the fluctuation of proprietary investment, which leads to the instability of performance.
Since the beginning of this year, due to the downward trend of market shock, the performance of brokerage stocks has continued to be depressed, and “broken net stocks” have also increased. However, the other side of the sharp increase of “breaking net” has also been concerned by the market. Some institutional people believe that from the current position and valuation, some securities companies have almost entered the “historical bottom area”
proprietary investment dragged down the performance of securities companies in the first quarter
In terms of specific business lines, the income of self operated investment business of securities companies fell sharply in the first quarter, and only a few companies such as Citic Securities Company Limited(600030) , Huatai Securities Co.Ltd(601688) , China International Capital Corporation Limited(601995) , Shenwan Hongyuan Group Co.Ltd(000166) , China Securities Co.Ltd(601066) , etc. realized positive income.
Data source: Shanghai Dzh Limited(601519) Caihui (statistical criteria: self operated income = investment income + income from changes in fair value – investment income to associates / joint ventures; no statistics are made on Polaris Bay Group Co.Ltd(600155) , Guangdong Golden Dragon Development Inc(000712) , Harbin Hatou Investment Co.Ltd(600864) etc.)
Many securities companies made it clear in the first quarter report that the lower than expected performance in the first quarter of this year was due to self operation. For example Caida Securities Co.Ltd(600906) said that due to the decline in the investment income of proprietary business and the fair value of securities held by the company, the operating income of the company decreased simultaneously, and then superimposed on the impact of the reversal of a large amount of credit impairment loss in the same period of last year, the net profit and net profit after deduction decreased.
Shenwan Hongyuan Group Co.Ltd(000166) non bank financial research team believes that proprietary business is the “winner” of the increase or decrease in the performance of securities companies in the first quarter of this year, and it is expected that the performance of leading securities companies with low proportion of equity proprietary business is dominant. Wang Zejun, a non bank analyst at China Post securities, said that under the background of the downward market shock this year, the investment and research capacity of different companies will be directly reflected in the performance difference of proprietary business income. In addition, the derivatives business ability of head securities companies is stronger than that of small and medium-sized securities companies, and their profitability in terms of anti risk fluctuation and structural market is also stronger.
brokerage stocks’ net breaking phenomenon returns
Recently, the “broken net share” of the securities sector has also been rising. Wind data show that as of April 29, 13 of the 48 listed securities companies were in a net breaking state. Including Haitong Securities Company Limited(600837) , Huatai Securities Co.Ltd(601688) , Guotai Junan Securities Co.Ltd(601211) , Everbright Securities Company Limited(601788) and other large and medium-sized securities companies, the price to book ratio has also been less than one time.
From the perspective of historical market, the net breaking of securities companies’ shares is not “normal”. Generally, the sharp increase of net breaking is mostly caused by the sharp decline of the stock market. Tracing back to 2018, the last round of “net breaking tide” of brokerage stocks showed that the Shenwan brokerage index fell by more than 20% from January 31 to September 28, 2018. Since June of that year, Haitong Securities Company Limited(600837) , Everbright Securities Company Limited(601788) , China Industrial Securities Co.Ltd(601377) and other brokerage stocks have broken net successively. In addition to the weakness of the secondary market at that time, the rising risk of equity pledge business was the key factor leading to the net breaking.
“The explosion of stock pledge in 2018 was essentially caused by insufficient asset liquidity. Now there are similar assets, such as the market is generally worried about the credit risk of real estate bonds, but it is not the main reason for this round of net destruction.” The non bank analyst of a medium-sized securities company in Shanghai believes that the main reason for the net increase of securities companies’ shares in this round is that although the performance of securities business has been good in the “calf market” since 2019, it also reflects the problem of over reliance on capital in its transition to heavy capital business. Some companies need frequent refinancing, resulting in the suppression of valuation.
Zhang Jingwei, chief non bank analyst of Anxin securities, believes that since this year, a number of large and medium-sized securities companies have increased their financing efforts, and some investors have weakened their willingness to participate in the financing of securities companies, resulting in a certain stock selling pressure. In addition, the sharp adjustment of the market has triggered investors’ concern about the risk of equity pledge, and the net valuation of securities companies also reflects the market’s concern about relevant risks to a certain extent.
“After the risk release in the past three years, the overall scale of stock pledge business has decreased significantly. At present, although the stock market has been adjusted greatly, the financing environment of listed companies and the credit risk exposure of securities companies are significantly better than that in the second half of 2018. Therefore, compared with the sharp net break of listed securities companies in 2018, there is limited room for further decline in the stock valuation of securities companies.” Zhang Jingwei said.
At the same time, there is also a market view that the large-scale “net breaking” of securities companies often indicates that the market is close to the bottom range. Looking back on history, after a large number of brokerage stocks broke the net in 2018, the brokerage sector ushered in a wave of bottom rebound around October of that year. “I don’t think breaking the net is necessarily a bottom signal, but the current valuation level of the securities industry is relatively low. From the perspective of roe / Pb, it has a certain cost performance.” The aforementioned analyst of a medium-sized securities firm said that the “long logic” of the migration of residents’ wealth to equity assets is still, and the “big wealth management” line is the first line in terms of growth power.
Zhang Jingwei said that since this year, the brokerage sector has fallen by 30% as a whole. At present, the valuation level is 1.3 times, Pb is also at a historical low, and this valuation level is difficult to reflect the investment value of the industry. In the short and medium term, the performance of brokerage stocks is closely related to liquidity and capital market reform. At the current time point, under the environment of wide credit and stable growth, the expected liquidity remains relatively abundant. At the same time, with the deepening of capital market reform, the development prospects of investment banking and institutional business are broad, and it is optimistic about the repair of the overall valuation level of the subsequent brokerage sector.
