The Zhitong Finance App learned that Fangzheng Securities released a research report saying,The new year of supply-side reforms is getting closer, and the concentration of the securities industry may be reaching an inflection point of stepwise growth.The 3Q results have initially verified the logic of supply-side reforms, and next year will be a major year of supply-side reforms, and the level of concentration may rise to the next level. There are three major paths of improvement: fee cuts will accelerate the clearance of small and medium-sized institutions, catalyze mergers, acquisitions and restructuring in the securities industry on both the supply and demand sides, and optimize the risk control index system to expand the capital space of high-quality brokerage firms. I recommend CITIC Securities (600030.SH), etc.; it is recommended to focus on Guolian Securities (601456.SH), etc.

▍ The main views of Fangzheng Securities are as follows:

I. Performance Overview: 3Q Single Quarter Profit -10% YoY/ -28% Month-on-Month

The 3q23 brokerage sector had total main securities revenue of 87.8 billion billion/YOY -11% /qoq -20%, and a total net profit of 28.1 billion billion/yoy -10% /qoq -28%; 9M23 achieved cumulative main securities revenue of 312.5 billion/yoy +6%, and net profit of 10.3 billion/yoy +7%.

Investment income improved year on year, and the rest of the business was under pressure. The main income split was as follows: 1) Light capital business revenue yoy -18%/59%. The decline in revenue was mainly due to policy adjustments and poor markets, which put pressure on the scale of new development funds and equity financing year on year; 2) capital business revenue yoy +3%/account for 41%, and investment income improved year on year.

Self-employment has brought high flexibility to some small to medium brokerage firms, and their leadership is also divided. Among the leading brokerage firms, Huatai and Guojun ranked first in profit growth in 9M23 and 3Q23. CITIC's performance was steady, and CICC's profit was under pressure due to the decline in investment banks and limited capital business. Some small to medium brokerage firms, such as Zhongtai, Southwest China, and Great Wall, have achieved high performance growth due to self-operation losses.

2. Capital light business: The impact of policies is beginning to show, and supply-side reforms are gradually deepening.

3Q23 brokerage, investment banking, and asset management business revenue was yoy -17%/-33%/-2%, respectively. Looking at the indicators: 1) The average daily stock transaction for 3q23 is 799.8 billion yuan/QoQ -21% /yoy -13%, and the newly issued equity fund's 67.8 billion share/qoq -1% /yoy -43%; 2) According to issuance day statistics, the 3q23 domestic equity financing scale was 278.6 billion yuan/yoy -45%, showing the impact of phased regulatory tightening on equity financing; 3) Affected by public placement fee cuts, the quarterly asset management revenue of Guangfa and Oriental was -19% and -28% respectively.

3. Capital heavy business: Investment improved year over year but was under pressure month on month.

The total investment assets of 3Q23 brokerage firms are 6.08 trillion yuan/QoQ +2%; the average annualized investment yield is 1.4%, and investment income is 23.1 billion yuan/yoy +37%.

Liangfinance's assets expanded slightly, and interest income was +4% year over year. At the end of 3q23, listed brokerage firms raised a total capital balance of 1.29 trillion yuan/QoQ +0.6%; total purchase and resale of financial assets of 381.6 billion yuan/QoQ -9.4%; and quarterly interest income of 54.5 billion yuan/yoy +4%.

Risk warning:

Capital market reforms fell short of expectations; liquidity fell short of expectations; stock market adjustments were drastically adjusted; and progress in mergers, acquisitions and restructuring fell short of expectations.