Shen Wan Hongyuan: Gradual Verification of the 26H1 Business Prosperity of Listed Brokerage Firms Focusing on the Development of the Three Major Businesses to Promote the Rise of ROE Centers

The Zhitong Finance App learned that Shen Wan Hongyuan released a research report saying that the securities sector's operating sentiment continued to improve, the industry's high performance in the second quarter (profit levels of some targets are expected to increase further month-on-month) continued to be verified, policy catalytic implementation was implemented, and capital factors tend to subside. At the same time, the sector may usher in potential catalysts for multiple business lines such as science and innovation, wealth, and overseas, or a double increase in performance and valuation in the second half of the year. We recommend 2 main investment lines: 1) leading institutions that are currently undervalued, benefit from the optimization of the competitive landscape of the industry, and have strong comprehensive strength; 2) characteristic brokerage firms with high valuation and a clear ROE improvement logic.

Shen Wan Hongyuan's main views are as follows:

Incident: The 26H1 business climate of the industry continues to be verified. The performance of 17 listed brokerage firms is promising, and the advantages of leading tier brokerage firms are showing

As of July 15, the Shanghai and Shenzhen Main Board's semi-annual performance forecast disclosure window has come to an end. A total of 17 listed brokerage firms in the sector have disclosed their semi-annual performance forecasts, all of which are encouraging. Among them, 7 brokerage firms are among the top ten leading tier institutions in the industry (in order of net profit indicators returned to their mother in 25 years), and the proportion of promising performance is significantly higher than that of medium and small institutions (70% of the top ten leading tier brokerage firms; 30% of medium and small brokerage firms). The implicit industry development trends behind them cannot be ignored.

The three major business lines of science and innovation, wealth, and overseas provide strong performance drivers, leading the “group” development advantage of leading tier brokerage firms

The 26H1 Brokerage Wealth Retail Business Operation Office has provided a “basic market” for prosperous management (the average daily share base turnover of the 26H1 market was about 3,242.8 billion yuan, +101% year over year; average daily balance of two loans was about 2,746.7 billion yuan, +48.8% year over year). However, considering that current operations in brokerage and finance businesses are mostly reflected in “volume compensation,” it is difficult to provide advantageous development momentum. Competitive performance drivers are mostly reflected in the three major business lines of science and innovation, wealth, and overseas operations. Since the specific business scenarios of the three major business lines are mostly brokerage subsidiaries (such as Science and Innovation: Alternative Subsidies+PE Subsidiaries; Wealth: Participant/Holding Public Offering+Asset Management, etc.; International: International Subsidiaries, etc.), leading tier institutions with leading “group” development benefits. 1) Science and Innovation: Providing high growth momentum in a single quarter over a single quarter. The main characteristic of the domestic capital market in 26Q2 is the strong market for science and innovation (Science Innovation 50 rose about 76% in a single quarter). The strength and accuracy of brokers' early investment in science and technology innovation determined whether they can fully benefit from market characteristics and achieve strong quarterly growth (such as China Merchants Securities, Cathay Pacific Haitong, etc.). 2) Wealth: It is expected that better customer base quality and more full-chain layout will help to better grasp market opportunities. Leading tier brokerage firms have an advantage in terms of high-end customer base reserves and are expected to take the lead in business segments such as private equity sales; at the same time, leading institutions with high-quality participant/holding public+brokerage asset management will use the full wealth management chain layout to better grasp market opportunities (such as CITIC Securities and GF Securities). 3) International: Marginal expansion opens up new growth space. The international branch has become an important marginal expansion direction for the industry, and the importance of international business in the business portfolio continues to grow. It is expected that leading tier brokerage firms will continue to use international business development to open up business space and boost ROE hubs (such as CITIC Securities, GF Securities, etc.).

In the operation of the 26H1 industry, science and innovation equity investment is fully recognized and traded by the market as a strong catalyst

However, it should be seen even more behind it: 1) Strong catalytic single-point equity investment in science and technology innovation is the starting point rather than the end point of the trend. Brokerage management is closely related to the development of the science and innovation industry. Leading institutions with a full chain layout on the financing side (investment banking+investment+investment and research, etc.), product side (“big asset management” business+institutional services, etc.), and wealth side (wealth retail, etc.) will continue and fully benefit from the long-term cycle and major trends. 2) The development of business segments such as science and innovation, wealth, and international businesses nurtures hopes for an increase in the industry's ROE, and is an important anchor point for medium- to long-term valuation and pricing. ROE is a core fundamental driver of industry net market ratio (P/B) valuation. In addition to the current boom in the industry, we should also look at the leading layout of leading tier brokerage firms in the three major business areas (all with better ROE momentum) and pioneering exploration in collaborative exhibitions across business lines, so as to observe the upward direction of the industry's ROE center based on a single license management narrative logic. 3) Interindustry integration promotes continuous optimization of the industry ecosystem, and leading tier brokerage firms benefit. As mergers and acquisitions integration cases within the industry continue to be implemented, management resources such as customer base, capital, and talent continue to be concentrated in leading tier organizations. Under the combined influence of factors such as operational efficiency, use of leverage, and scale effects, the industry's business ecosystem continues to be optimized.

Risk warning: Market transactions declined beyond expectations; market capitalization of companies participating in science and innovation fluctuated beyond expectations; overseas business development process fell short of expectations, etc.