Source: Broker China Author: Sun Xiangfeng
The holders of brokerage stocks raised their eyebrows and sighed!
On April 26, Hong Kong and A-share Chinese brokerage stocks collectively surged. Many Hong Kong stock brokerage stocks rose more than 6%.$GUOLIAN SEC (01456.HK)$Up more than 25%,$CICC (03908.HK)$An increase of more than 10%,$CGS (06881.HK)$An increase of more than 9%.
According to the news, the State Council report proposed concentrating efforts to build a “national team” for the financial industry. The integration of the securities industry is also being accelerated, and the integration of the League of Nations Securities and Minsheng Securities has begun.
In an interview with a Chinese reporter from a brokerage firm, market participants said that the current policy environment encourages financial institutions to grow bigger and stronger, and that future mergers and acquisitions among brokerage firms, especially large brokerage firms, will be a long-term trend. At the same time, the brokerage industry as a whole is underrated and has a high cost performance ratio and safety margin.
Concentrate on building a “national team” for the financial industry
On April 26, Hong Kong stocks and Chinese brokerage stocks surged collectively. Individual stocks in the sector soared across the board, and the League of Nations Securities rose more than 25%.
The biggest benefit comes from the policy level. According to the National People's Congress website, the “Report on the State Council's Research and Handling of Opinions and Rectification and Accountability of the Special Report on State-owned Assets Management of Financial Enterprises” (hereinafter referred to as the “Report”) proposes concentrating efforts to build a “national team” for the financial industry and push leading brokerage firms to become stronger and better.
The “Report” points out that in response to issues raised in the review opinions, such as the large scale of China's financial industry, but its competitiveness needs to be enhanced, the Ministry of Finance and financial management departments have taken the initiative and continued to make efforts to promote the high-quality development of financial state-owned state-owned enterprises and drive an improvement in the overall operating efficiency of the financial industry.
The “Report” suggests, first, that efforts should be concentrated on building a “national team” for the financial industry. Research and draft action plans to strengthen the management of state-owned financial capital, promote large-scale state-owned financial enterprises to target world-class financial enterprises, highlight their main business, improve their expertise, and continuously enhance their competitiveness and international influence. Research and formulate guiding opinions to promote high-quality development in the insurance industry, etc., and promote the standardized development of non-bank financial institutions. Promote leading securities companies to become stronger and better, and support the Shanghai and Shenzhen stock exchanges to build world-class exchanges.
Second, it is necessary to improve profit distribution and capital replenishment mechanisms. Strengthen the ability to supplement endogenous capital. According to the requirements of the “Opinions on Further Improving the State-owned Capital Operating Budget System”, study and optimize profit distribution of state-owned financial enterprises, increase capital replenishment mechanisms, and improve the classification and classification rules for the proportion of profits handed over by state-owned financial enterprises in line with the development needs of different industries and types of financial enterprises. Broaden foreign capital replenishment channels, actively support major state-owned banks to issue total loss absorption capacity (TLAC) bonds to enhance risk resilience; allow insurance companies to issue unfixed term bonds to supplement capital in the interbank bond market, and broaden insurance companies' capital replenishment channels.
Xu Yishan, chief financial analyst at Fangzheng Securities, said in an interview with a Chinese reporter from a brokerage firm that a strong financial country needs strong capital markets and strong capital intermediaries. Improving and strengthening leading brokerage firms is an important proposition of the times. Optimize the allocation of state-owned financial capital, and non-bank institutions welcome opportunities.
“The “Report” also proposes a timely and reasonable adjustment of the share of state-owned financial capital in banking, insurance, securities and other industries. Based on total assets, banking institutions are currently “one branch and one.” Previously, the State Council's new “Nine Rules” also clearly proposed supporting leading securities companies to become better and stronger through mergers, acquisitions, restructuring, and organizational innovation. Future mergers and acquisitions among brokerage firms, especially large brokerage firms, is a long-term trend.” Xu Yishan said.
The Central Financial Work Conference held in 2023 proposed “cultivating first-class investment banks and investment institutions” for the first time. In November of the same year, the Securities Regulatory Commission stated that it will support leading securities companies to become better and stronger through business innovation, group management, mergers, acquisitions and restructuring, etc., to build first-class investment banks, and play an important role in serving the main force in the real economy and maintaining financial stability.
Accelerating consolidation in the securities industry
Judging from the industry itself, the integration of brokerage firms at the equity level has indeed continued to accelerate in the past two years. Guolian Securities issued an announcement last night stating that the company is planning to acquire control of Minsheng Securities Co., Ltd. and raise supporting capital by issuing A-shares.
According to the company's announcement, Guolian Securities has reached a cooperation agreement with the Guolian Group and 45 shareholders holding a total of 95.48% of Minsheng Securities. The parties to the transaction have agreed to actively provide necessary cooperation and make every effort to push forward this restructuring.
Guolian Securities said that the company and Minsheng Securities have officially begun the integration process, which is not only an important measure to respond positively to the spirit of the Central Financial Work Conference and implement various policy requirements such as the new “National Nine Rules”, but also a strategic initiative to stick to its business roots, improve and strengthen, and build a large-scale securities company with distinctive business characteristics, leading market rankings, and strong competitiveness to better serve high-quality economic and social development. The successful completion of the integration of the two companies will be the first case of a securities company improving its core competitiveness through mergers, acquisitions and restructuring after the Central Financial Work Conference first proposed “building a first-class investment bank.”
In addition to the restructuring of Guolian Securities and Minsheng Securities, the acquisition of Guodu Securities by Zheshang Securities and the integration of Fangzheng Securities by Ping An Securities are all ongoing.
Zheshang Securities announced on March 29, 2024 that it plans to transfer a total of 1,116 billion shares of Guodu Securities. After the transfer is completed, the company will become the largest shareholder of Guodu Securities. According to the announcement, the share transfer price is 2.673 yuan/share, and the transaction is subject to approval by the China Securities Regulatory Commission and compliance confirmation of the national SME share transfer system. According to the assessed price, this transfer of shares may require a capital of 2,984 billion yuan.
Zhongtai Securities pointed out in a recent research report that this year is the first year of financial supply-side reforms, and the impact on the industry may significantly exceed market expectations. Among them, investment opportunities for brokers' integration are particularly noteworthy: the acceleration of mergers, acquisitions and restructuring itself will benefit brokers' stock prices, and industry concentration will increase dramatically. It will also improve the market share, revenue, and profit stability of leading brokers' market share and profit. Further increase in the platform's voice will also facilitate a significant increase in brokers' ability to control costs compared to previous years.
It is worth noting that in addition to favorable policies, brokerage firms themselves also have great advantages in terms of valuation. As of April 25, the sector's overall PB was only 1.06 times, and many leading brokerage firms were in a broken state. At the same time, due to pessimistic expectations such as previous business tightening, active equity funds currently have significantly lower positions in the brokerage sector.
According to a recent research report by Ping An Securities, the heavy holding ratio of actively managed funds in the securities sector was 0.46% in the first quarter, down 0.23 percentage points from month to month, maintaining the month-on-month trend of reducing holdings, and the heavy holding ratio was close to its low since 2020.
Ping An Securities pointed out that regulation will continue to pay attention to the high-quality development of the capital market, focus on improving investors' sense of attainment, and that the importance of the capital market and brokerage firms will increase. Under the guidance of speeding up the construction of first-class investment banks, higher compliance risk control requirements, and strengthened supervision, the supply side of the securities industry will continue to be optimized. The current valuation of the Shenwan Securities Index is only 1.06xPb, which is in the top 1% of the past 10 years. The fund heavy position ratio is also close to its low in the past 4 years, and has a high cost performance ratio and safety margin.
“The catalyst for events such as building a national financial team and mergers and acquisitions in the securities industry is expected to correct overly pessimistic market expectations, and the securities sector has entered a left-side layout period.” Xu Yishan said.
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