Oriental Securities: Currently, three types of capital return models are worth paying more attention to. Companies with advantages are expected to fully transform better ROA into ROE

The Zhitong Finance App learned that Orient Securities released a research report saying that from an ROE perspective, in addition to short-term capital market betas, brokers' investment value should pay more attention to ROA level, asset profit stability, and ability to effectively expand tables. The bank believes that at present, there are three types of capital return models worth paying more attention to: first, comprehensive leading brokerage firms with strong ability to undertake heavy capital businesses and can maintain a reasonable ROA under high operating leverage; second, efficiency-driven brokerage firms with high profit efficiency per unit asset and customer base that can further expand capital intermediation scenarios; third, platform-based brokerage firms that rely on platforms, traffic, and customer resources to form high ROA and low leverage characteristics, and have room for further monetization of customer resources. With the deepening of capital intermediation services such as market making, derivatives, institutional transactions, cross-border and comprehensive financing, companies with customer base, capital strength, financing capacity, and risk management advantages are expected to fully transform better ROA into ROE.

Orient Securities's main views are as follows:

ROA determines the basis of profit, and operating leverage determines the extent of ROE expansion. Whether the two can be effectively matched is the core of understanding brokers' long-term capital returns

Historically, the main operating direction of listed brokers' ROE was determined by ROA, but in recent years, the operating leverage contribution has increased markedly: from 2023 to 1Q26, the ROA of listed brokers' ROA increased from 1.1% to 1.5%, during the same period, ROE increased from 5.3% to 8.4%, and operating leverage increased from around 4.8 times to 5.7 times. Similar ROE can correspond to a completely different profit model. To determine the return on capital of a brokerage firm, we also need to focus on the profitability of unit assets and how large a balance sheet the business model can handle.

ROA is determined by both profit conversion efficiency and asset utilization efficiency. Different businesses influence asset profitability through different paths

Net interest rates of 2024/2025/1Q26 listed brokerage firms rose to 31.0%/40.8%/42.4% respectively. The total asset turnover ratio remained low during the same period. The ROA recovery in recent years was mainly due to improvements in profit conversion. At the business level, the core of proprietary investment is asset size, unit return, and income stability; credit business is determined by market financing requirements, customer base, and unit asset return; light capital businesses such as brokerage, asset management, and investment banks contribute revenue with lower asset occupancy and further create capital-heavy business demand through customers, AUM, and project resources; costs and expenses determine the normal level of profit conversion, and impairment losses amplify the decline in ROA during the pressure phase.

Increased operating leverage alone does not create value. Actual business needs and reasonable marginal asset returns determine whether table expansion can increase ROE

If additional assets can handle investment, credit, market trading, derivatives and other capital intermediation requirements, and maintain reasonable returns after deducting financing costs and potential risk losses, asset scale growth can increase operating leverage while controlling ROA dilution; in the absence of high-return asset usage scenarios, table expansion may reduce the profit efficiency of unit assets. The light capital business simultaneously undertakes customer and project resource acquisition functions in this process. The more efficient the transformation of resources into financing, trading and risk management requirements, the easier it is for capital scale to form a continuous profit contribution.

Overseas experience further shows that the key to higher ROE is whether the balance sheet can continue to serve real customer needs

From 2016 to 2025, the average ROA of Goldman Sachs Group/Morgan Stanley was only 0.9%/1.0%, lower than CITIC Securities/Huatai Securities/CICC's 1.6%/1.3%, but the average operating leverage reached 12.2/11.4 times, which is significantly higher than the 5.2/4.8/6.5 times of the three domestic brokerage firms. Major US investment banks use large amounts of assets for trading inventory, guaranteed financing, securities lending, and customer financing. The trading, financing, and risk management needs of institutional clients provide continuous asset acceptance with high leverage. Domestic brokerage ROA already has a good foundation. Subsequent ROE central upgrades rely more on capital intermediary businesses such as market making, derivatives, institutional transactions, cross-border and comprehensive financing to expand asset usage scenarios, and simultaneously improve financing and risk management capabilities.

Risk Alerts

Capital markets fluctuate greatly; returns from investment operations fall short of expectations; recovery of capital market financing activities falls short of expectations; industry regulatory policies and compliance risks; risks of overseas business operations; risks of not being fully applicable to foreign experience due to differences in different market environments.