Affected by the official announcement of the merger of GTJA Securities and Haitong Securities, the brokerage sector surged today. As of the time of publication, Sealand Securities has hit the limit up, Guangdong Golden Dragon Development Inc. has risen more than 9%, China Galaxy, Tianfeng Securities, China International Capital Corporation, The Pacific, China Securities Co.,Ltd. and CITIC Securities followed the trend.

GTJA and Haitong Securities announced the merger officiAlly.

On the evening of September 5th, GTJA Securities and Haitong Securities announced suspensions, announcing that the two companies are planning a major asset restructuring.

According to the announcement, the trading method of this restructuring is that GTJA Securities will acquire Haitong Securities through issuing A shares to all A-share shareholders and issuing H shares to all H-share shareholders, and at the same time issuing A shares to raise funds.

In view of the significant uncertainties of the above matters, in order to ensure fair information disclosure, safeguard the interests of investors, and avoid abnormal fluctuations in the company's stock price, according to the relevant regulations of the Shanghai Stock Exchange, the two securities companies will be suspended from September 6th (Friday) when the market opens, and the suspension is expected to last no more than 25 trading days.

It is worth noting that this merger is the first major securities firm merger and restructuring since the implementation of the new "Nine Provision" and the largest case of merger and absorption of the securities company and the A-share market in the history of China's capital market.

If the transaction is completed, the total assets and net assets of the new company are expected to become the first in the industry. According to the 2023 data, the total assets after the merger will reach 1.68 trillion yuan, and the net assets attributable to the mother will reach 330 billion yuan. And the merged revenue and net income attributable to the mother will be second only to China International Capital Corporation, ranking second in the industry.

Fangzheng Securities pointed out that after the merger, the net assets of the new brokerage entity are expected to jump to the first in the industry, and the business areas complement each other. Guotai Junan Securities and Haitong Securities are at the forefront of the industry in terms of overall strength. The new entity after the merger is expected to increase its capital strength and business competitiveness, and open up long-term growth space.

From an industry perspective, Huatai Securities believes that this merger is expected to accelerate the supply side reform of the industry, promote the concentration of the industry to the top, and effectively boost the securities sector and market sentiment in the short term. In the medium and long term, attention still needs to be paid to the effectiveness of merger and integration after landing.

Huachuang Securities also stated that in the past, it was difficult to promote the merger of top-tier brokerages. One of the reasons is that the industry has not achieved a precedent for the strong combination of listed top-tier brokerages, and there is no reference template. At this time, it is difficult to control business risks, employee issues, and minority shareholders. If Guojun Haitong can successfully achieve the merger, the imagination space for industry mergers is expected to further expand, and the imagination space for the merger of top-quality brokerages such as China International Capital Corporation and China Galaxy, China Securities Co.,Ltd. and CITIC Securities is expected to further open up.

Brokerage performance as a whole is under pressure in the first half of the year.

Looking back, the overall performance of brokerages in the first half of the year was poor. This was mainly due to factors such as a decline in market turnover, losses in proprietary investments, a downturn in investment banking business, and pressure on the economy and market fluctuations.

However, despite facing multiple challenges, top-tier brokerages still show strong resilience.

China International Capital Corporation is the only brokerage with a net profit exceeding 30 billion yuan in the first half of the year. The operating income in the first half of the year reached 30.183 billion yuan, and the net profit attributable to the mother was 10.57 billion yuan, both ranking first. However, both operating income and net profit have decreased compared to the same period last year, with a decrease of 4.18% and 6.51% respectively.

Huatai Securities ranked second among the top ten companies in terms of revenue in the first half of the year. In the first half of the year, it achieved operating income of CNY 17.441 billion and net profit attributable to the parent company of CNY 5.311 billion, a year-on-year decrease of 5.05% and 18.99% respectively.

China Galaxy and Guotai Junan followed closely behind. China Galaxy achieved operating income of approximately CNY 17.086 billion in the first half of the year, a year-on-year decrease of approximately 1.88%; net profit attributable to the parent company was CNY 4.388 billion, a year-on-year decrease of approximately 11.16%. Guotai Junan achieved operating income of CNY 17.07 billion in the first half of the year, a year-on-year decrease of 6.89%; net profit attributable to the listed company's shareholders was CNY 5.016 billion, a year-on-year decrease of 12.64%.

However, the performance of some small and medium-sized brokerages varied significantly. Tianfeng Securities, Huaxi Securities, and Guolian Securities all experienced a significant decline in net profit.

Tianfeng Securities achieved operating income of CNY 0.722 billion in the first half of the year, a year-on-year decrease of 66.56%; net loss attributable to the parent company was CNY 0.324 billion, a year-on-year change from profit to loss, with a decrease of up to 158.71%.

Huaxi Securities achieved operating income of CNY 1.413 billion in the first half of the year, a year-on-year decrease of 30.09%; net profit attributable to the listed company's shareholders was CNY 39.5487 million, a year-on-year decrease of 92.46%.

Guolian Securities achieved operating income of CNY 1.086 billion in the first half of the year, a year-on-year decrease of 39.91%; net profit attributable to the listed company's shareholders was CNY 87.7093 million, a year-on-year decrease of 85.39%.

On the other hand, Hongta Securities and Dongxing Securities have performed remarkably well. Hongta Securities achieved operating income of CNY 1.028 billion in the first half of the year, a year-on-year increase of 31.85%; net profit attributable to the listed company's shareholders was CNY 0.449 billion, a year-on-year increase of 52.27%. Dongxing Securities achieved operating income of CNY 4.878 billion in the first half of the year, a year-on-year increase of 168.28%; net profit attributable to the parent company's shareholders was CNY 0.576 billion, a year-on-year increase of 64.67%.

Overall, most brokerage institutions remain optimistic and bullish about the future prospects of the sector.

Minsheng Securities believes that despite the pressure on performance, under the background of supply-side structural reform, mergers and reorganizations, as well as business transformation, are expected to become the next main focus of exchange. The leading brokerages are expected to accelerate the trend of building first-class investment banks and investment institutions through mergers and reorganizations, organizational innovation, and so on.

Huatai Securities pointed out that the current sector is undervalued and underallocated, with a high cost-effectiveness ratio. Looking ahead, wealth management and capital intermediary businesses may still experience fluctuations in the current market environment; investment banking equity financing business may face short-term pressure, while mergers and reorganizations are expected to usher in new opportunities; equity investments are still expected to face pressure, with a focus on fixed income investment returns and the performance elasticity brought by the recovery of the equity market's prosperity; international business will continue to be an important focus for brokerages to expand their revenue boundaries. It is recommended to focus on the sector's structural opportunities brought about by the stabilization of the market and the expected improvement.

Guolian Securities maintains a rating of "outperforming the market" for the brokerage industry. 1) After the intensive introduction of policies, the market sentiment is expected to warm up. We will continue to pay attention to the market turnover and the sustainability of the index rebound. If the market's beta ratio increases, there is still room for resilience in the brokerage industry; 2) From a policy perspective, under the policy direction of promoting the good and restricting the inferior, we believe that the structural supply-side progress of brokerages will accelerate. The advantages of high-quality top brokerages in terms of cautious operation and professional capabilities will be further highlighted; 3) The PB valuation of the brokerage industry is still at a historical low. We focus on recommending high-leverage, undervalued large state-owned brokerages such as Huatai Securities and Citic Securities.