The share price performance of Guotai Junan International is obviously lower than that of the HKEx, but we can see that there is a lot of room for the former to make up.
The recent rebound in the stock market will allay market concerns about margin financing and investment business.
Strong turnover from the beginning of the year to today, coupled with the expected secondary listing of more US-listed Chinese stocks, are expected to benefit Guotai Junan International.
Since April 2020, Guotai Junan International has bought back 0.78% of the shares in free circulation, reflecting the company's confidence in the future of its business.
To reiterate the "overweight" rating, the target price remains unchanged at HK $1.33.
Guotai Junan International has lagged behind the HKEx since the beginning of the year.
Since the beginning of the year, Guotai Junan international shares have fallen 29.7 per cent, significantly lower than the Hong Kong stock exchange (up 18.6 per cent). This means that the gap in relative performance is greater than 48%. The reason for the underperformance of Guotai Junan International's share price is that the stock market fluctuated sharply in the first quarter, while Guotai Junan International's margin financing business and investment / market-making business accounted for 58.7% of total revenue in 2019, so investors may be worried about these two businesses.
The recent rally in the stock market has helped to allay worries.
The recent lifting of blockades and the gradual resumption of economic activity in many cities around the world have stimulated a sharp rebound in global stock markets.
The Hang Seng Index is now up 18.5% from this year's low. We believe that this will help reduce the risk of Guotai Junan International's margin financing and investment / market-making business this year.
Since the beginning of this year, the Hong Kong stock market has recorded an average daily turnover of more than HK $100 billion in May, with an average daily turnover of HK $115 billion, an increase of 17.8 per cent over the same period last year. March was the hottest month since the beginning of 2020, with an average daily turnover of HK $142 billion, up 28.2 per cent from a year earlier. This partly explains why HKEx's share price has performed strongly so far this year. Compared with the Hong Kong Stock Exchange, Guotai Junan International's performance lags behind, which means that the latter's share price has room to make up for the improvement in market sentiment. In addition, it is expected that more US-listed stocks will be listed in Hong Kong, which will benefit not only HKEx but also some leading investment banks in Hong Kong, such as Guotai Junan International. For example, Guotai Junan International is one of the joint bookrunners and co-lead managers of JD.com 's listing in Hong Kong.
20 million shares have been repurchased since the results were announced in April 2020
Since April 2020, the company has been actively buying back shares; the total repurchase of shares is equivalent to 0.78% of the free circulation.
The total number of shares repurchased in May reached 14.8 million, accounting for 78.5% of this year's total. This reflects the company's confidence in the future of the business.
Reiterate the increase in the rating
We reiterate our "overweight" rating with a target price of HK $1.33 (0.89 times 2020 market net ratio). We believe that there are three major catalysts for the company in the short term: (I) strong daily turnover; (ii) a rebound in global stock markets and allay market concerns about margin financing and investment business; and (iii) more Chinese stocks listed in Hong Kong, which will be good for investment banking.