Main points of investment

Market mechanism excellent research strength, mixed benchmarking accelerated rise: 1) mixed benchmarking, market mechanism is excellent. Tianfeng Securities, founded in 2000 and headquartered in Wuhan, Hubei Province, is a national comprehensive listed securities company with full securities license. Tianfeng Securities experienced four rounds of capital increase and share expansion from 2012 to 2015. after the completion of the shareholding reform in 2012, the company changed from a regional securities firm with only a single brokerage business to a full-license comprehensive securities firm with mixed ownership. it has successively increased the qualification of margin financing, securities recommendation, consignment of financial products and the provision of intermediary introduction business to futures companies. 2) as the benchmark of mixed ownership reform, there are no controlling shareholders and actual controllers in Q1 ~ 3 companies by 2020, the ownership is scattered and the shareholder structure is diversified. The strength background of state-owned assets and the vitality of private mechanism complement each other, and the company has developed rapidly under the excellent market-oriented mechanism. 3) the overall performance of the company is excellent, and the business structure develops evenly. As of 2020Q1~3, the company's performance bottomed out and rebounded, achieving operating income of 3.432 billion yuan (year-on-year + 39.39%), net profit of 702 million yuan (year-on-year + 262.34), and ROE reaching 4.65%. The overall scale has basically entered the ranks of quasi-medium-sized securities firms. Brokers, self-management and investment banks are the "troika" that drive the company's performance, and the company's profits are characterized by high elasticity.

Brokerage business accelerates the transformation of wealth management, institutional split shows research strength, and business synergy is expected to gradually appear: 1) brokerage business: incremental institutional customer-driven commission rate + market share both in volume and price (the market share has reached 0.61% in 2018, an increase of 36pct. compared with the end of 2016; net commission rate rose against the market to 0.049%, significantly higher than the industry average). The company accelerates the wealth management transformation of the brokerage business, plays a synergistic role with Hengtai Securities (institutional + retail), and steadily promotes the integration of resources. 2) Tianfeng Securities Research Institute rose rapidly after its establishment in 2016, attracting star analysts to join with flexible mechanisms and generous incentives, and its research strength and influence increased significantly (11 teams selected by New Fortune in 2020 were on the list. The institute won the fifth place in the best local research team), and ranked 16th in 2020 (only 78 in 2015). Relying on its strong market influence and appeal, Tianfeng Securities is working to build a national industrial research think tank, enhance the voice and pricing power of the future market, and incubate strategic emerging industrial resources. pool funds, assets and resources to build a financial ecosystem, research into the company's comprehensive financial services driving force.

The asset management value rate leads the industry, and the overall market share of investment banks further increases: 1) Capital management business: by the first half of 2020, the total size of the company's asset management business is 149.5 billion, of which the scale of pooled capital management, targeted capital management and special asset management is 58.9 billion, 29.8 billion and 55.9 billion respectively. In terms of rates, affected by the downturn in the overall scale of asset management in the market, the annualized comprehensive rate of the company's asset management business in the first half of 2020 was 0.28% (measured by the net income of asset management business / the total size of entrusted management funds, it was 0.426% in 2019), but it is still significantly ahead of the industry average of 0.139%. 2) Investment banking business: the market share of the company's investment banking business increased in 2020, with a market share of 0.94% (0.15% in 2018) as of 2020Q3, and 2.3% in bond underwriting market (2018: 0.95%). Investment banking business deeply ploughs Hubei, implements the strategy of collectivization and commercialization, provides all-round innovative services, vigorously expands the business of central enterprises in Hong Kong, and forms a synergistic effect of mutual drainage at home and abroad. 3) under the influence of epidemic situation and macro environment, the company adopted the management idea of high Sharp rate and macro drive in 2020. As of 2020Q3, proprietary business income reached 1.291 billion yuan, an increase of 41% over the same period last year.

Profit forecast and investment rating: the company is based in Wuhan, relying on the rapid growth of state-owned assets plus private marketization mechanism, strong research strength, and is expected to achieve wealth management transformation and large investment banking business layout in the future. It is estimated that the net return profit of the company from 2020 to 2022 is 4.40,7.53 and 973 million yuan respectively, and the corresponding PE is 75.50x, 44.07x and 34.12x respectively, and the corresponding PB is 1.80x, 1.74x and 1.66x respectively. For the first time, coverage gives a "buy" rating.

Risk hints: 1) less than expected epidemic control leads to increased market volatility; 2) increased risk of industry competition; 3) stricter supervision to restrain industry innovation; 4) competition risk of foreign-funded financial institutions; 4) management risk.