Investment tips for the current period:
In 2023, the CSRC said that it would support leading securities companies to become better and stronger through business innovation, group operation, mergers and acquisitions. Based on this, we released a special report on M&A and restructuring in the early stage. As the second special report, this paper is committed to studying the expansion of the business capability boundary and the ability of linkage of securities companies from the perspective of group operation.
What is the definition of group operation? The definition of collectivization is to connect three or more independent legal persons of enterprises based on the parent company and linked by property rights. The essence of collectivization is to expand the boundaries of enterprises. The securities industry in China has changed from the parent company development of securities companies to the group development of securities companies in collaboration with their subsidiaries. Securities companies have set up subsidiaries in traditional securities business, futures, funds, private placement, alternative investment, international business and other fields, and their contribution to the overall income of the securities company group has steadily increased.
The rapid development of subsidiaries benefited from the policy dividend, the resource tilt of securities companies and the demand for expansion of subsidiaries' own scale.
Since 2011, the regulator has successively issued normative policies for public funds, direct investment and alternative investment business, and corresponding subsidiaries have emerged as the times require; From 2015 to 2017, the securities industry set off a capital replenishment climax, and the industry's net assets (parent company caliber) increased to 1.85 trillion yuan, about twice as much as at the end of 2014. A large amount of capital accumulated by the securities industry continues to increase the capital of its overseas subsidiaries, direct investment (including private fund management and alternative investment) and futures subsidiaries to achieve scale expansion or to acquire subsidiaries, which provides a deep capital foundation for the acceleration of the group operation of the securities industry.
The development of securities dealers' subsidiaries presents three characteristics: first, the income structure of subsidiaries is diversified: from a single traditional securities business (brokerage and investment banking) to futures, funds, private placement, alternative investment and international business; Second, the compound growth rate of subsidiaries' income and net profit is higher than that of the parent company's income and net profit, and the contribution of subsidiaries' operating income and net profit to the consolidated statements of securities companies shows an overall upward trend: in 2022, subsidiaries will contribute more than 40% to the group's revenue and about 20% to the profit (the main factor of low profit contribution is that the futures subsidiaries with significant income power among the companies have low net interest rates); Third, the trend of head differentiation is prominent. The head securities dealers are grouped earlier, and the distribution of subsidiaries is more complete. The degree of grouping is far higher than that of the industry.
The subsidiaries of securities companies are mainly divided into three types: we sort out the subsidiaries of 43 listed securities companies, which can be divided into three categories according to business classification: the first category is specialized subsidiaries, corresponding to the supplement of the main business segment of securities companies, such as investment banking subsidiaries (8), asset management subsidiaries (23), wealth subsidiaries (1) Investment subsidiaries (43 alternative subsidiaries and 44 private equity subsidiaries). The second category is overseas subsidiaries (29), which are mainly located in Hong Kong, China and Southeast Asia, and are the main body of international operation of securities firms. The third category is financial subsidiaries, which are used to carry out futures (41) and mutual fund business (non wholly owned subsidiaries). At present, 9 subsidiaries of 43 listed securities companies are still in line for establishment.
We believe that international business, investment business and "big asset management" business are still important directions for the securities industry to strengthen the distribution of subsidiaries:
① International subsidiaries: the advantage of high leverage is obvious, and improving profit margin/performance stability is the focus of the next stage. Since 2015, the weight of international business in the group business has been rising, and the growth of the top international business scale and performance is attributed to cross-border swap business.
② Investment subsidiaries: high profit margin business, with strong relevance to the equity market. The comprehensive registration system promotes the direct investment business to usher in a period of performance expansion, and business collaboration will also become a significant advantage for the development of the direct investment business of securities firms. The direct investment subsidiaries of securities firms can form certain collaboration with the parent company in the four links of business "raising investment management and withdrawal". ③ "Large asset management" subsidiary: capital light high ROE business. At the regulatory level, "strict supervision+policy warming" is in parallel, "one participation, one control, one brand" is implemented, personal pension is listed, the rate reform of public funds, the Matthew effect within the industry is intensified, and challenges and opportunities coexist in the large asset management industry. Since 2023, the application and establishment of independent asset management subsidiaries of securities firms have been accelerated, and the public offering transformation of asset management of securities firms has become an industry trend.
Investment analysis opinions: we believe that the development of collectivization can broaden the business development space of securities firms, smooth the impact of market fluctuations on performance, and help to improve the ROE hub. In the next stage, international business, investment business and large asset management business are still the key directions of the industry layout. We recommend the targets with significant effect of collectivization: China Galaxy, CITIC Securities, Huatai Securities GF Securities.
Risk tips: 1) The market fell sharply, and residents' entry into the market slowed down, which led to the sluggish growth of new funds and fund size in 2024, and affected the performance of fund companies, the income of brokerages selling financial products on a commission basis, and investment business. 2) The macro and market liquidity is less than expected, so the market turnover in 2024 is likely to decline significantly year on year, and affect the growth of industry brokerage income. 3) The pace of IPO and refinancing has been tightened, affecting the income of industry investment banks.
