the wealth management business transformation of securities companies and the transformation of proprietary customer demand business are conducive to reducing income fluctuation and improving performance certainty. The steady growth of roe is conducive to the improvement of long-term valuation center. In addition, the scale of stock pledge business, which caused a large amount of impairment provision to securities companies, has decreased to a low level, which has greatly alleviated the drag on the performance of securities business. The improvement of anti cyclical trend brings stronger value investment logic to the securities industry.
As of December 31, 2021, the cumulative market value of the securities sector has reached 3.46 trillion yuan, ranking sixth in the secondary industry of Shenwan. The market value of A-Shares in the securities sector decreased. As of December 31, 2021, the market value of the securities sector accounted for 1.83%, a decrease of 0.3 percentage points over the end of the previous year. The performance of the securities sector is weaker than that of the CSI 300 index, ranking lower in the secondary industry index. As of the closing on December 31, 2021, the cumulative increase of securities II (CITIC) index since the beginning of the year was – 10.62%, ranking 94th among 109 CITIC secondary industry indexes, with poor performance.
The market of the main line of wealth investment stems from the growth contribution of wealth management business, which is realized in the performance disclosure. Benefiting from the improvement of investment heat in the stock market and fund market, in the first three quarters of 2021, the year-on-year growth of net income from brokerage business, asset management business and interest was the highest among the main businesses, and the total income accounted for 39%, which was the main driving force for performance growth in 2021. The growth contribution of wealth management business was realized in the performance disclosure, so that in the market in the second half of 2021, individual stocks with wealth management themes received higher attention and accounted for a larger proportion in the top 10 in a single market increase.
more balanced income structure
According to the data disclosed by the Securities Industry Association, in the first three quarters of 2021, the securities industry realized an operating revenue of 366.357 billion yuan and a net profit of 143.979 billion yuan, with a year-on-year increase of 7% and 8.51% respectively. The growth rate decreased significantly compared with the same period in 2020 and 2019. After the rapid development in 2019 and 2020, the securities industry has entered a relatively stable development stage. As of September 30, 2021, the total assets of the securities industry were 10.31 trillion yuan, breaking the 10 trillion yuan mark for the first time, with a year-on-year increase of 20.30%, which is still strong compared with the same period in 2020 and 2019. The net assets of the industry were 2.49 trillion yuan, with a year-on-year increase of 11.16%, equivalent to the increase in 2020. In the first three quarters of 2021, although the business growth of the securities industry slowed down, the growth of total assets and net assets remained high, and the heavy asset attribute of the securities industry was strengthened.
In the first three quarters of 2021, the business segments of the securities industry showed mixed performance compared with the same period. Asset management business continued to remain low, with a slight year-on-year increase of 3.28%. Proprietary business was greatly affected by the volatility of the stock market, bond market and commodity market, with a year-on-year increase of 4.97%. Brokerage business and credit business achieved year-on-year growth of 11.19% and 8.41% respectively. The investment banking business failed to maintain growth in the case of substantial growth in 2020, with a slight year-on-year decrease of 3.61%.
According to the data, in the first three quarters of 2021, from the perspective of income structure, the revenue from self operated business accounted for 29.04%, which is the largest source of income in the industry, the same as that in the same period of 2020; Brokerage business is the second largest source of revenue, accounting for 27.32% of revenue, a slight increase compared with the same period in 2020; The revenue of investment banking business accounted for 11.36%, which decreased slightly compared with the same period in 2020; The revenue of asset management business accounted for 5.99%, the lowest level since the same period in 2018; The revenue of credit business accounts for 13.19%, which is the third largest source of revenue after proprietary business and investment banking. Its revenue has remained stable since 2019.
In recent years, the overall income structure of the securities industry has been gradually balanced. From the perspective of business structure, brokerage business and proprietary business account for half of the operating income. Investment banking business, credit business and asset management business belong to the second echelon of revenue, which have their own performance in different years.
In 2018, Pb in the securities industry hit a new low since 2011, showing an upward trend in 2019, reaching a high since 2017 in mid-2020, and falling again in 2021, returning to the level in mid-2019. As of December 31, 2021, the industry Pb was 1.61 times, in the quantile of 20.8% of the 10-year valuation. At present, the brokerage Pb is below the long-term mean, and the standard deviation range remains appropriate, reflecting that the valuation fluctuation is still relatively stable. From the perspective of valuation, the securities industry may be underestimated and there is a certain allocation value.
From the perspective of individual stock valuation, the Pb valuation of most individual stocks of securities companies is below the historical quantile of 50%, but the overall roe of the industry maintains an upward trend, the profitability of individual stocks of securities companies increases rapidly, and the growth rate of revenue and net profit is maintained at about 20% – 30%. There is a mismatch between valuation and profit in the securities sector, and there is a large space to repair the valuation of the sector.
value “de directionality” of assets over “de cyclicality”
The asset business of securities companies mainly includes proprietary business and credit business. In recent years, the income of proprietary business of securities companies has gradually increased. According to the data provided by China Securities Association, in the first three quarters of 2021, the self operated business income of Chinese securities companies was 106.404 billion yuan, a year-on-year increase of 4.97%. In order to maintain the stability of proprietary income and avoid excessive performance elasticity affecting the company’s revenue, more and more securities companies take “de directionality” as the development direction of proprietary investment. In order to achieve the purpose of “de directionality”, subjective unilateral trading behavior is less and less. Adopting quantitative strategies, hedging transactions and providing market making services have become the common path for the transformation of head securities companies. Whether it is quantification, hedging or market making, the requirements for securities companies’ talents, equipment and capital are very high. Compared with small and medium-sized securities companies, the head securities companies will be much smoother on the road of transformation, Citic Securities Company Limited(600030) the income from business investment has been quite stable in recent three years, and the situation of large fluctuation of self operated income has been significantly improved from 2012 to 2018. The relationship between self operated earnings and net capital of securities companies is also very close, showing a positive relationship as a whole. The self operated earnings of securities companies with strong capital strength are relatively stable.
In the future, the transformation of securities companies’ investment and trading business is the general trend, and the OTC option business will bring transformation channels and growth for securities companies’ proprietary investment business. The forms of financial derivatives business carried out by securities companies mainly include: client – OTC option quotation trading, stock income swap, cross-border income swap and other OTC derivatives services, providing floating income linked income vouchers, structured products and other OTC products; Exchange – provide liquidity market making services for floor option products; Proprietary hedging – provide interest rate derivatives based service support for proprietary fixed income departments, reduce the risk of fixed income business and improve roa.
In terms of credit business, the balance of two financial institutions continued to rise, and the activity of market funds increased. On the whole, it continued to rise in 2021. As of December 31, 2021, the balance of margin financing and securities lending was about 1832.191 billion yuan, including 1712.051 billion yuan and 120.14 billion yuan, accounting for 2.45% of the circulating market value of a shares.
From the perspective of financing balance, the current level is close to the high point in 2015, but the proportion of financing balance in the market circulation market value in May 2015 exceeded 4% for many consecutive days, and is currently maintained at around 2.5%. At present, the expansion of financing scale is mainly affected by the expansion of two financing targets, and the balance of two financing is still under control.
As a short selling mechanism, securities lending business has the functions of value discovery, improving liquidity and enriching investment strategies. With the development and growth of institutional investors, the demand for hedging, risk hedging and new strategies using securities lending has increased, and the securities lending business has developed rapidly. Since the second half of 2020, the scale and proportion of securities lending have increased rapidly. As of December 31, 2021, the scale of securities lending was 120.14 billion yuan, accounting for 6.55% of the balance of the two loans.
In terms of brokerage business, the overall volatility of securities companies’ stocks in the past few years is strong, which is due to the strong periodicity of securities asset light business, the brokerage business performance is affected by the fluctuation of market transaction volume and the decline of commission rate, and the investment banking business is greatly affected by regulatory policies, resulting in large periodic fluctuations in securities business performance, β Attribute far exceeds α Properties. In terms of brokerage business, the transaction amount shows great volatility. The root cause is that in the cyclical operation of macro economy, the tightness of liquidity environment changes periodically and with a large range. For example, the year-on-year growth rate of social finance stock fluctuated greatly from 2003 to 2017. Since 2018, the fluctuation range of the growth rate of social financing stock has decreased, the curve has become more gentle, and the environment for the sharp fluctuation of monetary policy is also shrinking.
At present, compared with previous years, the overall market value of A-share market is also growing. At present, the total market value of A-share is 93.19 trillion yuan. Since 2019, the average daily turnover rate of total market value of the two cities is 1.14%, and the average daily turnover rate of total circulation market value of the two cities is 1.4%. The growth of the overall trading volume of A-Shares is normal and normalized, and the trading volume of trillion yuan may become a new normal.
At present, the proportion of institutional investors in the A-share market is increasing, and the trading volume contributed by institutions is growing steadily. From the perspective of shareholding proportion, the proportion of institutional shareholding is increasing, which has increased to about 25% in recent years. From the member data of Shanghai and Shenzhen Stock Exchange, we can see that the trading volume contributed by institutional investors in the market is increasing, the proportion of trading volume is relatively high and stable, and the improvement trend is significant. The trading volume contributed by institutions is more stable than that of retail investors. In the future, with the continuous increase of the scale of institutions, the trading volume contributed by institutions will increase steadily.
Since 2018, various securities companies have carried out wealth management transformation of brokerage business lines. The business income of securities companies selling financial products on a commission basis increased rapidly. In 2020, the business income of securities companies selling financial products on a commission basis was 12.5 billion yuan, an increase of 89.07% year-on-year. In the first half of 2021, it reached 10.05 billion yuan, accounting for 14% of the brokerage business from 2% in 2014. In the initial stage of arranging the wealth management track, securities companies mainly focus on the consignment of financial products and pay attention to the selection of products in the whole market and the ability of managers. At present, securities companies are also constantly exploring the scheme of subsequent wealth management transformation.
Securities companies are constantly building investment advisory system in order to help match excellent products with appropriate customers. With fund investment advisers as the starting point to develop buyer investment advisers, the ownership scale has developed rapidly. Since October 2019, the first batch of 18 institutions have obtained the pilot qualification of fund investment advisory business. Except for commercial banks, other financial institutions have landed and developed. With the increasing number of fund investment advisory pilot institutions, the fund investment advisory business is expected to develop into a routine business. The opening of business space is accompanied by the guidance of investors. With the fund investment adviser as the starting point, the development of buyer investment advisers will lead to increasingly fierce competition. Differentiation and high-quality service will become the core competitiveness of the development of fund investment advisers.
In terms of asset management business, the channel asset management business of securities companies has peaked in 2017 since it was launched in 2012. Since the new asset management regulations in 2018, it has also shown an accelerated contraction trend. The scale of targeted products (mostly channels) has been reduced from 16 trillion yuan at the high point to about 7 trillion yuan at present. At present, the de channel effect of asset management business of securities companies is obvious, and the proportion of collective asset management products is gradually increasing. Under the background of deepening the unified supervision of the “one bank, two sessions”, the competition in the asset management industry is becoming increasingly fierce, and the transformation of the asset management business of securities companies to active management and focus on differentiated development has become an important trend. By the third quarter of 2021, the stock scale of China’s collective asset management plan was 3204.9 billion yuan, and the stock scale of a single asset management plan was 4883.7 billion yuan. The proportion of the scale of collective asset management plan has increased to 37%.
In terms of investment banking, according to the data provided by China Securities Association, securities companies achieved a total investment banking revenue of 41.6 billion yuan in the first three quarters of 2021, a slight decrease of 3.61% year-on-year, mainly due to the high base in the first three quarters of 2020. The scale of IPO Financing has been remarkable, maintaining a growth rate of more than 80% for two consecutive years. On June 12, 2021, the CSRC issued the relevant system rules for the reform of the gem and the pilot registration system, which shall come into force as of the date of promulgation. The reform of the registration system will bring many new changes to various capital market participants and the real economy. The listing cost of innovative and start-up enterprises is expected to be reduced and the efficiency will be further improved, which is conducive to financing and development. Diversified investment targets will provide investors with more choices by supporting innovative and start-up enterprises, traditional industries and new technologies, Shenzhen New Industries Biomedical Engineering Co.Ltd(300832) , new formats The deep integration of the new model will provide strong support for the development of the real economy. With the gradual implementation of the registration system reform, the investment banking business of securities companies has benefited directly.
basically good policy driving force
With the establishment of Beijing stock exchange, the space of investment research sponsor Cooperation (exit) will be widened. Beijing stock exchange hopes to open up a new battlefield of registration system and bring significant increment to the business of securities companies. In addition to the underwriting, recommendation and brokerage business directly increasing the profits of securities companies, the improvement of the exit path will also broaden the space of the business chain of securities companies and realize the closed-loop path of investment research, recommendation and cooperation (exit). For the securities companies deeply engaged in the new third board business, with the help of the development of the new third board business, to realize the “corner overtaking” of the head securities companies will also be the focus of the future capital market. Beijing stock exchange not only brings broad extension space from the number of targets and market capacity, but also widens the boundary in the types and characteristics of listed companies, increases the flexibility and space of asset allocation for institutional investors, and meets the needs of investors with different risk preferences.
The establishment of Beijing stock exchange has further improved the multi-level capital market system, strengthened the linkage of new third board enterprises, and created good conditions for the development of small and medium-sized enterprises. The establishment of Beijing stock exchange reflects the determination of the state to support the innovative development of small and medium-sized enterprises, and highlights the profound strategic intention of the state to implement the innovation driven development strategy and continuously cultivate new driving forces for development. Compared with the Shanghai and Shenzhen Stock Exchange, the Beijing stock exchange highlights “earlier, smaller and newer”. The average market value, average operating income and first-time average raising amount of selected companies to be listed are significantly lower than those of Shanghai and Shenzhen listed companies. The size of enterprises is smaller and the growth is higher. Compared with the main board, it mainly serves large mature enterprises, and the science and innovation board serves “hard technology”, The “three innovations and four innovations” of gem services have formed a dislocation development pattern.
“The new positioning of the capital market and the hub to promote scientific and technological innovation and the transformation and upgrading of the real economy” has promoted the Beijing stock exchange to a more important strategic position. The establishment of the Beijing stock exchange to supplement the short board of the capital market structure will promote the growth of investment banking business of securities companies. According to the data disclosed by chinanews.com, small and medium-sized enterprises are an important new force in China’s economy, contributing more than 50% of taxes, more than 60% of GDP, more than 70% of technological innovation, more than 80% of urban residents’ employment and more than 90% of the number of enterprises. However, the supply side structure of China’s capital market is short, the listing channels of small and medium-sized enterprises are not unblocked, the new third board has high access threshold and poor market liquidity. In recent years, the new third board reforms such as the establishment of selected layers and the channel for listing on the board have improved the financing problems of small and medium-sized enterprises, but the establishment of the Beijing stock exchange has completely filled the short board of the capital market.
Beijing stock exchange has been built as the main position for serving innovative small and medium-sized enterprises, which will meet the financing needs of a large number of small giant enterprises in the science and technology industry and drive the growth of investment banking business of securities companies. The number of IPO issuers increased significantly, bringing more customer reserves for subsequent refinancing and debt commitment.
In 2021, the scale and number of IPOs of securities companies continued to increase. By the end of December 2021, the scale and number of IPOs had increased by 13.15% and 19.9% respectively to 543.773 billion yuan and 524. With the promotion of policies supporting scientific and technological innovation and financing of small and medium-sized enterprises, since 2018, the underwriting projects of securities companies have shown a trend of reducing the financing scale of a single company, and the increase in the number of companies is higher than the increase in scale. In the future, under the general trend of supply side reform, the IPO of securities companies will usher in greater business increment. The significant increase in the number of securities companies will bring more customer reserves for subsequent refinancing, debt commitment, M & A and reorganization, which will also help to disperse risks for follow-up investment business. In addition, considering that the registration system compacts the capital market gatekeeper responsibility of investment banks, puts forward higher requirements for asset pricing and underwriting ability, and the amount of single fund-raising decreases, the underwriting rate of IPO business will increase in the future.
The supervision of the securities industry continued to “support the good and limit the bad”. The CSRC announced the “white list” of the first batch of securities companies to guide the compliance culture of securities companies, manage the theme of securities companies through the white list, encourage the business of securities companies, guide the securities industry to pay attention to compliance operation, and promote the continuous trend of industry concentration. The white list securities companies have simplified the process of regulatory opinions in terms of financing such as issuing sustainable subordinated bonds, initial issuance, additional issuance, allotment of shares, issuing convertible bonds, short-term financing bonds and financial bonds, and made it clear that the innovative pilot business must be generated from the white list. The white list system is good for securities companies with high level of compliance and risk control management. On the one hand, under the background of deepening the heavy asset transformation of securities companies, the financing procedures of white list securities companies are simplified, which is conducive to the future development of securities companies; On the other hand, whether it is on the white list determines whether it is qualified to compete for the pilot of innovative business, which is the breakthrough for the diversified development of securities companies and striving for new performance growth points.
Since 2016, the asset scale of the securities industry has continued to grow, currently exceeding 10 trillion yuan. By the end of September 2021, the total assets of the securities industry had reached 10.31 trillion yuan, an increase of 15.84% over the end of the previous year; The scale of net assets reached 2.49 trillion yuan, an increase of 7.79% over the end of the previous year, and the performance of the securities industry continued to improve. Since the low point in 2018, the revenue and net profit of the securities industry have continued to grow. In the first three quarters of 2021, proprietary business accounted for the largest proportion of the revenue of the securities industry. Under the trend of institutionalization of the capital market, institutional business has broad growth space.
In the next decade, the equity market will develop greatly, residents’ savings funds will flow to the equity market, and the scale of fund business will be expanded. As of December 31, 2021, the net asset value of the whole market fund was 25.3 trillion yuan, an increase of 25.6% over the end of the previous year. With the growth of residents’ equity asset allocation demand, the fund scale will be further expanded in the future. The asset management scale of securities companies stabilized and rebounded. Affected by the new asset management regulations of “de channeling, deleveraging and de just exchange”, the asset management scale of securities companies continued to shrink after reaching the peak value (18.77 trillion yuan) in the first quarter of 2017, and the current scale is stabilizing and recovering. At the end of the third quarter of 2021, the asset management scale of securities companies was 8.64 trillion yuan, an increase of 1.06% over the beginning of the year. In the future, with the deepening of active transformation and the expansion of wealth management market, the asset management scale of securities companies is expected to continue to rise.
The homogenization of business development in China’s securities industry is still serious, and its anti cycle ability is weak. The continuous growth of roe needs to vigorously expand the layout of asset business. The great development of OTC business is the internal development needs of securities companies to expand leverage, increase revenue, promote transformation and improve customer service. Under the background of the improvement of market institutionalization, derivatives have broad development space, which is of great value to improve the income structure of securities companies, break the homogeneous competition situation and improve profitability. Referring to the development experience of leading foreign investment banks, OTC sales and trading business is an important driving force for serving institutional customers, which will significantly increase the income space of securities companies.
As a short selling mechanism, securities lending business has the functions of value discovery, improving liquidity and enriching investment strategies. With the development and growth of institutional investors, the demand for hedging, risk hedging and new strategies using securities lending has increased, and the securities lending business has developed rapidly. By the end of 2019, the scale of securities lending was 13.728 billion yuan, accounting for 1.35% of the balance of securities lending. Since the second half of 2020, the scale and proportion of securities lending have increased rapidly. On September 10, 2021, the balance of securities lending reached the high point of 173.744 billion yuan during the investigation period, accounting for 9.07%. Although the current scale and proportion have declined, they still exceed 100 billion yuan.
The regulation allows insurance capital to participate in securities lending, enriches securities sources and helps business development. The lack of securities source and the high cost of securities lending have become the constraints restricting the development of securities lending business. On December 3, 2021, the cbcirc issued the notice on matters related to insurance funds participating in securities lending business, liberalizing the qualification of insurance funds participating in securities lending. As an important participant in the capital market, insurance funds have large-scale securities assets and long holding period. Participating in securities lending can enrich the supply of securities sources, optimize the supply and demand structure of the capital market, improve market liquidity and promote the development of securities lending business. The development of securities lending business has accelerated, and the leading securities companies have increased resource investment to promote the development of securities lending business and expand market share. Under the trend of institutionalization of market subjects, high-quality service for professional institutional customers is the core competitiveness of securities companies. Securities companies, especially head securities companies, take credit business as an important starting point for institutional customer service, tap the strategic demand of securities lending trading, expand the supply of securities sources, and enhance the customer service ability of institutions. The competition in the field of securities lending business will be more intense in the future.
Hualong Securities believes that under the background of the continuous introduction of capital market policies in the future and the promotion of residents’ demand for wealth management by the policy of “common prosperity and no speculation in housing and housing”, the growth of securities companies is becoming more and more prominent. In 2022, wealth management is still the main driving force for the fundamental growth of securities companies, and institutional business will also usher in opportunities for growth and transformation, which is expected to form a trend synergy with wealth management business. The transformation of wealth management business of securities companies and the transformation of proprietary customer demand business are conducive to reducing income fluctuation and improving performance certainty. The steady growth of roe is conducive to the improvement of long-term valuation center. In recent years, the scale of stock pledge business that has caused a large amount of impairment provision for securities companies has been reduced to a low level, the stock risk has been cleared, the pressure of incremental impairment is small, and the drag on the performance of securities business has been greatly alleviated. Securities companies have strong growth certainty and anti cyclical trend, bringing stronger value investment logic to the industry.
At present, the securities industry is still in the undervalued range and has great room for rise. At present, the price to book ratio of securities companies is 1.61 times, which is only near the 20% quantile in 10 years, which makes the undervalued value deviate from the high view, and there is a large room for the rise of valuation. It is expected that the monetary policy will be stable and loose in 2022, the liquidity of stock market and fund market will be abundant, and the favorable and innovative policies in the securities industry will occur frequently, which is expected to catalyze the market of the sector.
Soochow Securities Co.Ltd(601555) believes that the industry policies of securities companies are frequent, and is optimistic about the long-term development of securities companies. Recently, a series of policies to promote the construction of securities companies and capital markets (insurance funds, new regulations on income swaps, comprehensive accounts and the full implementation of the registration system) are conducive to the industrial chain of ficc, wealth management and large investment banks. With the continuous growth of wealth management business, channels, products and investment advisers have benefited deeply; The scale of derivatives has maintained rapid growth in recent years, new products have been launched one after another, the superposition system has been continuously standardized, and ficc constitutes the core increment; The construction of multi-level capital market has accelerated, and the science and innovation board and the Beijing stock exchange have brought new increments. At the same time, the reform of the registration system has also brought dividends to the stock business system, and the uncertainty of the long-term profit center of securities companies has increased. There is a great contrast between the fundamentals and policies of securities companies and the valuation. The profits of securities companies continue to reach a new high. Relative to roe, they are close to the level of the previous bull market (2015-2016), but their valuation is still at the bottom 1 / 4 of the historical valuation. The long-term configuration value of securities companies is promising.
