Listed Brokers' Revenue & Net Profit Fall in 1H, Yet Performance & ROE Steady

Industry performance has shown divergence, mainly reflected in the differentiation of ROE.

The supply-side structural reform process of securities firms will accelerate, and the advantages of high-quality leading securities firms in stable operation and professional capabilities will further stand out.

In the first half of 2024, 43 listed securities firms achieved a main business income of 186.8 billion yuan, a year-on-year decrease of 16%; among them, the total income from fee-based businesses was 89.4 billion yuan, a year-on-year decrease of 16.8%, accounting for 48% of the income; the total income from capital business was 97.4 billion yuan, a year-on-year decrease of 15.9%, accounting for 52% of the income.

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From the perspective of attribution, the income from investment business decreased by 10.2% year-on-year, negatively pulling the main business income growth rate by 4.7 percentage points.

Although the rise in the bond market since 2024 has driven some repair of securities firms' fixed income investment returns, the investment returns of securities firms still face pressure year-on-year under the high base of the same period in 2023.

The net investment income (net investment income + fair value changes in gains and losses - income from associated and joint venture enterprises + net exchange gains and losses) of the 43 listed securities firms in the first half of 2024 decreased by 10.2% year-on-year, accounting for 41.5% of the income, and negatively pulled the main business income growth rate by 4.7 percentage points.

The income from fee-based businesses has declined by double digits year-on-year, dragging down the main business income growth rate by 9.67 percentage points.

The income from brokerage business in the first half of 2024 decreased by 13% year-on-year, accounting for 24.5% of the income; the income from investment banking business decreased by 41.4% year-on-year, accounting for 7.5% of the income; the income from asset management business increased by 0.6% year-on-year, accounting for 12.1% of the income; other fee-based income decreased by 18.4% year-on-year, accounting for 3.8% of the income; the income from brokerage, investment banking, asset management, and other fee-based businesses contributed -3.7 percentage points, -5.2 percentage points, 0.07 percentage points, and -0.8 percentage points to the main business income growth rate, respectively.

The net profit attributable to the parent company of the 43 listed securities firms in the first half of 2024 decreased by 22% year-on-year, and the industry performance showed divergence; among them, the top three net profits attributable to the parent company were CITIC Securities (10.6 billion yuan), Huatai Securities (5.3 billion yuan), and Guotai Junan (5 billion yuan), with year-on-year decreases of 7%, 19%, and 13%, respectively, all with growth rates better than the industry.

The 43 listed securities firms achieved a main business income of 99.9 billion yuan in the second quarter of 2024, a year-on-year decrease of 9%; among them, the total income from fee-based businesses was 45.6 billion yuan, a year-on-year decline of 19.6%, accounting for 46% of the income; the total income from capital business was 54.4 billion yuan, a year-on-year increase of 3.3%, accounting for 54% of the income.

From the perspective of attribution, the income from investment business in the second quarter increased by 14.6% year-on-year, positively pulling the main business income growth rate by 5.4 percentage points; the bond market in the second quarter of 2024 has warmed up compared to the same period in 2023, driving some repair of securities firms' investment returns.

The ROE of the securities industry has shown divergence.

Looking at the fee-based businesses, wealth management business fluctuates with the market, and the scale of equity financing has declined, which is reflected in the brokerage business, with a decrease in trading enthusiasm and a cold reception for new funds.

From market indicators, both in the first half of 2024 and in the second quarter, the average daily stock turnover has decreased year-on-year: the average daily stock turnover in the second quarter was 828.9 billion yuan, a year-on-year decrease of 17.8%, and a quarter-on-quarter decrease of 8.3%; the average daily stock turnover in the first half of the year was 866.3 billion yuan, a year-on-year decrease of 7.8%.

In addition, the share of new equity funds issued in the first half of 2024 has decreased significantly year-on-year: the share of new equity funds in the second quarter was 56.1 billion shares, a year-on-year decrease of 33%, and a quarter-on-quarter decrease of 1%; the share of new equity funds in the first half of the year was 112.8 billion shares, a year-on-year decrease of 38%.

The 43 listed securities firms achieved a brokerage income of 45.8 billion yuan in the first half of 2024, accounting for 24.5% of the income, a year-on-year decrease of 13%.

On the one hand, the decline in market trading volume (the average daily stock turnover in the first half of 2024 decreased by 7.8% year-on-year) and the decline in commission rates year-on-year have led to a decrease in retail brokerage commission income.

On the other hand, the cold reception of new funds and the reduction in fund subscriptions and redemptions have led to a significant decrease in securities firms' income from selling financial products.

Looking at the year-on-year growth rate of brokerage income, in the first half of 2024, Shanxi Securities, Caizhi Securities, and Caifeng Securities achieved year-on-year growth rates of 14%, 1.7%, and -1.3%, respectively, which are better than the industry's year-on-year growth rate of -13%.

Looking at the proportion of brokerage income, in the first half of 2024, Tianfeng Securities, Huaxi Securities, and Changjiang Securities' brokerage business income accounted for 52.8%, 46.3%, and 46.2% of their income, respectively, significantly higher than the industry's level of 24.5%.

Leading securities firms have a lower dependence on brokerage business income, such as CITIC Securities, whose brokerage business income accounted for about 18% of its income in the first half of 2024.

Looking at the investment banking business, the scale of equity financing has contracted significantly, while the scale of bond underwriting has increased year-on-year.

In terms of financing scale, the scale of equity financing has contracted significantly: as of the issuance date, the scale of A-share IPOs in the first half of 2024 was 31.3 billion yuan, a year-on-year decrease of 85.1%; among them, the scale of A-share IPOs in the second quarter of 2024 was 8.9 billion yuan, a year-on-year decrease of 94%, and a quarter-on-quarter decrease of 60%; the scale of A-share refinancing in the first half of 2024 was 97.8 billion yuan, a year-on-year decrease of 68.9%; among them, the scale of A-share refinancing in the second quarter of 2024 was 31.1 billion yuan, a year-on-year decrease of 75%, and a quarter-on-quarter decrease of 53%.

The scale of bond underwriting in the first half of 2024 was 5.2 trillion yuan, a year-on-year increase of 0.4%.

The 43 listed securities firms achieved an investment banking income of 14 billion yuan in the first half of 2024, accounting for 7.5% of the income, a year-on-year decrease of 41.1%, and the decline in investment banking income was mainly due to the significant contraction of the market's equity financing scale.

The trend of centralization in equity underwriting business is obvious.

In the first half of 2024, the combined scale of the top five main underwriters for IPOs was 17.7 billion yuan, and the combined scale of the top five main underwriters for refinancing was 47 billion yuan, with a CR5 of 58% for IPOs and a CR5 of 66% for refinancing; among them, CITIC Securities' market share for IPO and refinancing main underwriting was 16.7% and 21.7%, respectively, and Huatai Securities' market share for IPO and refinancing main underwriting was 16.6% and 9.2%, respectively.

Looking at the year-on-year growth rate of investment banking income, in the first half of 2024, the year-on-year growth rates of Shougang Securities, China Galaxy, Pacific Securities, and Dongxing Securities were 43%, 42.2%, 33.4%, and 30.2%, respectively, which are significantly better than the industry's year-on-year growth rate of -41.1%.

Looking at the proportion of investment banking income, in the first half of 2024, Tianfeng Securities, Guojin Securities, and Pacific Securities' investment banking business income accounted for 46%, 17%, and 15% of their income, respectively, significantly higher than the industry's level of 7.5%.

Looking at the asset management business, bond funds are the main force in the growth of the asset management business scale, while the scale of equity funds has declined.

As of the end of June 2024, the scale of non-cash funds was 17.9 trillion yuan, among which, the scale of bond funds and equity funds was 6.9 trillion yuan and 6.7 trillion yuan, respectively.

The total market scale of non-cash funds at the end of June 2024 was 17.9 trillion yuan, a year-on-year increase of 10.4%, and an increase of 9.6% compared to the end of 2023; among them, the scale of bond funds was 6.9 trillion yuan, a year-on-year increase of 44.6%, and an increase of 29.6% compared to the end of 2023; the scale of equity funds (stocks + mixed) was 6.7 trillion yuan, a year-on-year decrease of 9.2%, and a decrease of 2% compared to the end of 2023.

In the first half of 2024, the 43 listed securities firms achieved a total asset management income of 22.6 billion yuan, accounting for 12.1% of the income, a slight year-on-year increase of 0.6%.

In the first half of the year, there were three securities firms with asset management income exceeding 2 billion yuan, and all three controlled or participated in the top public fund licenses.

In the first half of the year, the securities firms with asset management income exceeding 2 billion yuan were CITIC Securities (4.91 billion yuan), GF Securities (3.38 billion yuan), and Huatai Securities (2.22 billion yuan), with asset management business proportions of 18.5%, 29.8%, and 18.2%, respectively.

Among the above three securities firms, CITIC Securities controls Huaxia Fund, GF Securities controls GF Fund and participates in E Fund, and Huatai Securities participates in Huatai Puyue Fund.

Overall, in the first half of 2024, the ROE of the securities industry has shown divergence, among the listed securities firms, two listed securities firms' ROE exceeded 4%, with East Money, China Merchants Securities, and CITIC Securities ranking in the top three, with ROE ranging from 3.96% to 5.52%.

In the first half of 2024, the non-annualized ROE average of listed securities firms was 2.28%, a decrease of 0.91 percentage points compared to the first half of 2023.

The investment return rate is slightly under pressure.

Looking at the capital business, the investment return rate is slightly under pressure, and the cost of debt has decreased.

First, on the asset side, the investment scale has increased slightly, and the scale of credit assets has contracted.

In the first half of 2024, the listed securities firms achieved a net investment income of 77.5 billion yuan, accounting for 41.5% of the income, a year-on-year decrease of 10.2%.

It is expected that this is mainly due to the performance of the bond market being better than the equity market in the first half of the year, but the self-operated business of securities firms has slightly declined year-on-year under the high base of the same period in 2023.

As of the end of June, the CSI 300 Index rose by 0.89%, the STAR 50 Index fell by 16.42%, and the ChiNext Index fell by 10.99%.

The bond market has warmed up, and the China Bond Total Return Index rose by 2.78%.

Looking at the investment scale, the total investment assets of the 43 listed securities firms at the end of the first half of 2024 were 4.5 trillion yuan, a year-on-year increase of 1.9%.

In terms of investment return rate, the average annualized net investment return rate of the 43 listed securities firms was 4.11%, a year-on-year decrease of 0.4 percentage points; among them, Nanjing Securities' annualized investment return rate was 11.72%, significantly better than the industry.From an investment leverage perspective, the average investment leverage of the 43 listed securities firms in the first half of 2024 was 1.53 times, a year-on-year decrease of 0.03 times; among them, GF Securities had a leverage of 1.86 times, a year-on-year increase of 0.26 times, and Founder Securities had a leverage of 1.46 times, a year-on-year increase of 0.22 times, with both experiencing an increase in leverage year-on-year.

At the end of the first half of 2024, the total credit assets (lent funds + repurchase financial assets) of the 43 listed securities firms amounted to 1.66 trillion yuan, a year-on-year decrease of 2.2%; the market financing balance was 1.45 trillion yuan, a year-on-year decrease of 3%, and the short selling balance was 31.6 billion yuan, a year-on-year decrease of 66%.

The total scale of lent funds by the listed securities firms in the first half of the year was 1.24 trillion yuan, a year-on-year decrease of 3.05%, in line with the market (the market's two-way financing balance decreased by 7% year-on-year), accounting for 75% of the listed securities firms' credit assets; the repurchase financial assets were 41.94 billion yuan, a year-on-year increase of 0.27%.

Secondly, on the liability side, the cost of liabilities has slightly decreased.

In terms of liability costs, the average cost of liabilities for listed securities firms in the first half of 2024 was 3.04%, a year-on-year decrease of 0.11 percentage points.

Looking at operational leverage, in the first half of the year, the operational leverage of listed securities firms was 3.36 times, a year-on-year decrease of 0.13 times; the total interest-bearing debt of listed securities firms was 5.3 trillion yuan, a slight year-on-year increase of 1.3%.

Selecting securities firms listed before 2016 for statistics, the current industry dynamic PB average is about 1.23 times, among which the PB valuations of CITIC Securities, GF Securities, Huatai Securities, etc., have already fallen below the historical bottom position in 2018.

Based on this, investors can continue to pay attention to the sustainability of market turnover and index rebound; if the market beta goes up, the securities industry still has room for flexibility.

From a policy perspective, under the regulatory policy of supporting the excellent and restricting the inferior, the process of structural reform on the supply side of securities firms will be accelerated, and the advantages of high-quality leading securities firms in terms of stable operation and professional capabilities will further stand out.