With the reform of the capital market and the business innovation of the securities industry, the profitability of head brokerages has been improved. Relying on channel advantages and profound customer accumulation, Guoxin Securities, with brokerage business as the core, has gradually promoted the transformation of wealth management, and the industry ranking has risen in the past three years. With the completion of the change of management and the purchase of shares in the National Social Security Fund to replenish capital, the future development of Guoxin Securities is worthy of attention. Give a "hold" rating.
From the quasi-entrepreneur model to the new development path. Different from the headquarters centralization mode of other securities firms, Guoxin Securities adopted the federal management mode in the early stage. In 2005, the company put forward the quasi-entrepreneur system, with the help of the bull market of 2006-2007, Guoxin brokerage business rose rapidly. But the weak coordination ability caused Guoxin Securities to fall behind gradually after 2015. From 2018 to 2021, the leaders of the management team who have been working together for more than 15 years (the former chairman of the company, the head of the brokerage business and the investment banking business) have left one after another. This round of management change is expected to push Guoxin onto a new development track.
The brokerage business is the main source of income for the company, and high ROA increases shareholder returns. Guoxin Securities has four business sectors: brokerage and wealth management, investment banking, investment and trading and asset management. Brokerage and wealth management is the main business segment of Guoxin Securities. In the first half of 2021, brokerage and wealth management contributed 4.8 billion yuan, accounting for about 46.6% of the total income of each division. In terms of shareholder return, the company's ROE has been leading the industry average for a long time, mainly due to the higher ROA. 2019-2021Q3, Guoxin Securities ROA is 2.25%, 2.51%, 2.34% respectively, in the leading position in the head brokerage.
Brokerage business: a business model characterized by a giant business department, wealth management gives birth to new development opportunities. The period from 2006 to 2007 is the stage of the rise of Guoxin brokerage business. Guoxin quickly established the leading advantage of brokerage business with the help of the advantages of Bank Securities. At its peak in 2009, the market share was 4.74%, ranking third in the industry, second only to Guotai Junan and Galaxy Securities. However, due to the limited ability of business cooperation and the loss of customer share, Guoxin Securities market share gradually declined, to 2018 market share is only 3.02%. In 2019, with the opening of the curtain of wealth management transformation, Guoxin securities market share returned to the rising track. In the context of wealth management transformation, we need to observe whether Guoxin brokerage business can reverse the trend.
Investment transaction: capital replenishes and opens up the space for development, and risk exposure is worth paying attention to. The lack of capital is the deficiency in the early development of Guoxin securities investment and trading business. After the completion of the scheduled increase in 2021, Guoxin Securities' heavy capital business was supported by sufficient capital, and the share of income increased rapidly from 26 per cent in 2020 to 41 per cent of 2021Q3.
During this period, the scale of financial assets and risk exposure also expanded at the same time. From 2018 to 2021H1, the size of Guoxin Securities financial investment assets increased by 1977% and the Var value increased by 123%. Although the expansion rate of financial assets is ahead of the expansion rate of risk exposure, the risk exposure of unit financial assets is still the highest among the head securities firms, and the risk of income fluctuation is worth paying attention to.
Risk factors: the turnover of A shares dropped sharply; the risk of equity pledge of the company was exposed; the process of opening up to the outside world was not as expected.
Investment suggestion: with the reform of the capital market and the business innovation of the securities industry, the profitability of the head brokerage has been improved, which will be conducive to the improvement of valuation. However, the fluctuation of the stock market will inevitably bring the beta effect, which will have a two-way effect on the valuation of securities firms. We believe that the current price already reflects the reasonable valuation of Guoxin Securities, and it is expected that the company's share price will keep pace with the changes in the industry as a whole in the future. The net profit of Guoxin Securities is expected to increase by 54% in 2021.
It is estimated that the annual BVPS of 2021-22-23 will be 8.23 RMB 9.13 RMB respectively. The target price is 10.29 yuan, corresponding to 1.25 times of PB in 2021. Give a "hold" rating.