Return on net assets (ROE) is one of the core indicators for measuring corporate profitability. This article mainly uses ROE to explore the profitability and future business growth space of the securities industry.
Recently, the performance of major listed securities companies in 2020 has been basically released, and profitability is still somewhat differentiated. The return on net assets of many leading securities companies is significantly ahead, and the performance of leading securities companies has been affected by "bad debts". The average ROE of the 36 securities firms that have disclosed their 2020 annual reports is 8.01%. CITIC Construction leads the way with an ROE level of 15.3%. The ROE levels of CICC, Industrial Securities, and GF Securities also exceed 10%.
Judging from the strategic directions disclosed in the 2020 annual report, the sources of increased profits for the securities industry are spreading from traditional brokerage business to multiple dimensions such as wealth management, investment banking, FICC, and over-the-counter derivatives.
The average ROE in 2020 increased significantly by 8.01%
As of April 22, 36 A-share listed securities companies have basically disclosed their 2020 annual reports. CITIC Securities, Guotai Junan, Huatai Securities, China Merchants Securities, GF Securities, Haitong Securities, CICC, CITIC Construction Investment, Shenwan Hongyuan, Guosen Securities and other major securities firms have released.
The capital market will develop greatly in 2020, and the securities industry will obviously benefit. The arithmetic average ROE of 36 securities companies in 2020 is 8.01%. The year-on-year ROE of these 36 securities companies in 2019 and 2018 was 5.98% and 3.61% respectively. Compared with the situation in the previous two years, the ROE level of securities companies has increased significantly year by year. And net profit will increase significantly in 2020, with the general growth rate being more than 30%, and the median growth rate being 37.64%.
Among them, CITIC Securities, which has been highly sought after by the capital market, has an outstanding ROE level, currently ranking first in the industry with an ROE of 15.3%; secondly, the investment bank aristocrat CICC also has an ROE of 12.02%. Industrial Securities ranks among the top in the industry, with 11.09% and GF Securities ranking at 10.6%, both of which rank relatively high among major securities firms. From the perspective of net assets, these brokers are not the top ones in the industry, but are neck brokers.
Among these securities firms, CITIC Construction Investment has been at the forefront of the industry in terms of profitability in recent years. In 2019, its ROE was 10.56%, which was also at the forefront of the industry. In 2018, its ROE was 6.76%, which was also very high; The same is true for gold companies. The ROEs in 2019 and 2018 were 9.37% and 8.85% respectively, which are also at the forefront of the industry. GF Securities has also been good in recent years, with 8.55% in 2019 and 5.06% in 2018.
After experiencing the downturn in 2018, Industrial Securities has continued to make efforts to improve its profitability, and its profitability has emerged from the shadow of the previous explosion in the equity pledge business. The ROE of Industrial Securities, which suffered a thunderstorm in 2018, was only 0.41%, which rose to 5.27% in 2019, and then significantly increased to 11% in 2020.
CITIC Securities, the leading securities firm, has an ROE of 8.68% in 2020; the ROE levels of Haitong Securities, Guotai Junan, Huatai Securities, etc., which are also in the forefront in terms of net asset size, are almost all around 8%. ; In recent years, the leading securities firms have failed to show their leading characteristics in terms of profitability.
Wang Weiyi, an analyst at Ping An Securities, said that in 2020, all businesses of securities firms will flourish, with the market first declining and then rising, driving active transactions, enthusiasm for investment and financing rising, the capital market registration system reform advancing, and the scale of equity financing increasing significantly; The fund agency business is booming, and wealth management is also bearing fruit. Judging from the growth of various businesses, the growth rate of brokerage business and investment banking business is significantly higher than that of other businesses.
Several data can reflect the enthusiasm of the capital market in 2020. The Shanghai Composite Index rose by 13.87% throughout the year, and the GEM Index rose by 64.96%; the average daily turnover of the A-share market throughout the year reached 907.2 billion yuan, a year-on-year increase of 62%; the balance of financing and financing reached 1.62 trillion yuan, an increase from the end of the previous year 59%.
Wang Yifeng, assistant director of Everbright Securities Research Institute, said that the difference in ROE between different securities companies is mainly reflected in two aspects: operating efficiency and leverage level. "There are three main reasons for securities companies with high ROE. First, they benefit from the improvement of the equity market, and the income from traditional brokerage, investment banking and other channel businesses increases; second, they benefit from the recovery of the stock market, and self-operated investment income increases; third, the operating leverage The further improvement is mainly driven by the financial services business. "
However, although 2020 is a big year, the ROE level of securities companies is still not high compared with other financial industries. Compared with banks and insurance, which are also in the financial industry, even though the banking industry is often troubled by "bad debt expectations", it still maintains a higher ROE level. The average ROE of the 23 A-share listed banks that have disclosed their 2020 annual reports is 10.3%; the average ROE of the 5 insurance companies that have released their annual reports is as high as 14%.
“In 2020, against the background of the recovery of the capital market, the industry ROE increased by more than 1 percentage point compared with 2019, and was at a new high in the past four years.
In the future, as the reform of the capital market further advances and investors such as institutions and residents increase their allocation of equity, the ROE center of the securities industry is expected to increase slightly and steadily. "Wang Yifeng said.
Leading securities companies in profitability
Investment banking + wealth management outstanding
Although the overall profitability and ROE level of the securities industry have continued to improve in the past few years, Improvement, but the differentiation within the industry is still relatively obvious. Even if the market has improved in recent years, there are still some securities companies whose profits are still low. Behind this is the difference in the operating capabilities of different securities companies and the profitability of their business development models in 2020. Strong securities companies, outstanding performance in investment banking and wealth management
When securities companies such as CITIC Construction Investment Corporation and CICC maintain strong profitability among their peers, we also see that Centaline Securities, Jinlong Shares, The ROE of Huachuang Yangan, Guohai Securities, etc. has continued to be sluggish in recent years. The ROE of Centaline Securities has been below 1% for three consecutive years from 2018 to 2020, which means that it can earn less than 1 yuan per year with a net asset of 100 yuan. The money is lower than buying money funds. Jinlong Securities, which owns Zhongshan Securities and Dongguan Securities, has an ROE of 1.96% in 2019, 2.08% in 2019, and a negative 5.06% in 2018.
< p> Lagging securities companies each have their own problems, and leading securities companies already have obvious advantages in important business sectors. Coinciding with the advancement of the registration system and the development of the capital market, the equity financing business will develop rapidly in 2020, such as CITIC Construction Investment and CICC. Strong performance in investment banking and wealth management is an important factor in leading ROE. Although CITIC Securities, the leading company, was exposed to impairments in 2020, with credit impairment losses of up to 6.58 billion yuan, it still suffered losses that year. With revenue of 54.4 billion and net profit of 14.9 billion, ROE is still more than 8%.CITIC Securities’ investment banking strength is strong and its growth rate will be very high in 2020. The company's investment banking business achieved revenue of 5.843 billion yuan, a year-on-year increase of 58.99%; the company completed 68 equity financing projects throughout the year, with a lead underwriting amount of 161.878 billion yuan, ranking second in the industry. Some securities analysts said that China Securities Investment Bank. With a rich reserve of projects, it is expected to take advantage of the opportunity of the registration system reform to further unleash investment banking performance. As an investment banking aristocrat, CICC will benefit from the deepening of the registration system reform, the boom in the listing of Chinese concept stocks in Hong Kong, and the company's own international investment banking capabilities. CICC will achieve investment banking business in 2020. Net fee income was 5.96 billion yuan, a year-on-year increase of 40%.
Major securities companies are also focusing on wealth management. CITIC Construction Investment’s wealth management income in 2020 was 5.439 billion yuan, a year-on-year increase of 33.07%. Revenue from agency securities trading business was RMB 4.34 billion, a growth rate of 54.0%. Revenue from agency sales of financial products was RMB 540 million, a growth rate of 276.4%. The company’s margin financing and securities lending balance was RMB 55.152 billion, a growth rate of 88.34%. After the acquisition of China Investment Corporation, the retail shortcomings were supplemented. , CICC's wealth management business has grown rapidly. In 2020, the net brokerage fee income was 4.61 billion yuan, a year-on-year increase of 55%, and the wealth management business operating profit was 1.85 billion yuan, a year-on-year increase of 74%. As of the end of 2020, the number of customers reached 3.694 million, and the total value of customer assets reached 2.6 trillion yuan.
New business models may boost ROE
Judging from the strategic direction disclosed in the 2020 annual report, the source of increased profits for the securities industry is spreading from traditional brokerage business to wealth Management, investment banking, FICC, OTC derivatives and other dimensions. According to industry insiders, different securities companies have different depth and breadth of new business expansion and different core competitiveness. Leading securities companies are expected to take the lead.
Taking the wealth management business as an example, its transformation path is gradually transforming from a traditional commission model to a service commission model, and fund investment advisory will become an important starting point for the transformation of wealth management. Judging from the industry situation last year, the wealth management business that has accumulated over the past few years is gradually contributing to the income of securities companies, and is expected to become a new profit growth point for securities companies in the future to get rid of the "depending on the weather" model.
The person in charge of Guotai Junan’s fund investment consulting business believes that the continuous promotion of the fund investment consulting service model will bring innovative historical opportunities to domestic asset allocation services. However, public fund investment consulting is not a single service. Brokerages need to provide customers with comprehensive solutions. Public fund investment consulting is an important link in comprehensive financial solutions.
At the same time, as institutions gradually increase their investment in information technology, the advantages of financial technology in empowering wealth management are gradually emerging. According to annual report data, the official APP of Huatai Securities has developed into a high-quality client with over 10 million monthly active users, and China Merchants Securities has sold more than 1.7 billion yuan of financial products through mini programs. Many brokerages provide customers with full-life process, one-click asset management and allocation services through intelligent investment advisory layouts.
Recently, Citigroup raised the rating of Orient Securities to a "buy rating". The core reason is that it sees the potential market in China's asset management industry. Data show that China's wealth and asset management industry is still very underdeveloped. As of the end of 2019, the total asset management scale was only HK$86 trillion, while the investable assets of Chinese households are estimated to reach HK$200 trillion.
Mainland households are increasingly using fund investments to increase their exposure to the stock market, and their demand for investment advice and asset allocation from professional wealth and asset management companies is also increasing.
Citigroup’s research report pointed out that the market value of Internet securities companies represented by Oriental Fortune has increased significantly. This is based on valuations given by channels, etc. Judging from the buy rating given by Citibank to Oriental Securities, The main basis is that "the market may have underestimated Orient Securities' capabilities in wealth management." Obviously, the wealth management business of securities firms represented by Orient Securities is winning new valuations for listed securities firms.
At the same time, the development of investment banking business is also expected to usher in a golden period and become an important source of income for securities companies. CICC pointed out that a series of reforms in the capital market, such as the GEM registration system pilot, are expected to achieve significant growth in the equity underwriting business of securities firms; the relaxation of trading mechanisms and the listing of more new economy companies are expected to boost trading activity and thicken the brokerage Related business income; the launch of the Science and Technology Innovation Board and the implementation of the GEM registration system have made the primary market investment exit channel smoother, and the direct investment business of securities firms and venture capital companies are expected to benefit.
In addition, the development of high-value, asset-light innovative businesses, including derivatives business and FICC, will also become a new growth point for securities firms’ profits in the future.
Wang Yifeng pointed out that, benefiting from the further reform and opening up of the capital market, securities companies will have broad business development space in the future. Specifically, we believe that ROE levels can be improved in the future in overseas business, derivatives business, and direct investment business.
According to data from the Securities Industry Association, in 2020, the new nominal principal of the over-the-counter financial derivatives business of domestic securities companies totaled 4.76 trillion yuan, with a total of 110,000 transactions. Among them, the cumulative new nominal principal of income swaps in 2020 was 2.16 trillion yuan, and the cumulative new nominal principal of OTC options in 2020 was 2.6 trillion yuan.
Analyzes by most industry insiders point out that derivatives are the key to differentiated competition among securities companies and are a tool to improve the capital utilization efficiency of securities companies. Enlarging the balance sheet to improve the profit center is the competitive path for the securities industry in the short term. The relevant person in charge of the Derivative Investment Department of China Merchants Securities said, "Compared with the traditional business of brokerage, investment banking, investment research and self-operated securities firms, the OTC derivatives business can better meet the needs of institutional customers for personalized investment and risk aversion. It is conducive to increasing the stickiness of institutional customers of securities companies, thus enriching the sources of income of securities companies, and improving the comprehensive service capabilities and comprehensive competitiveness of securities companies.
On the new track of FICC, leading securities companies have also begun to compete for territory and seize new markets. Cake. Judging from the progress of securities financing projects disclosed recently, while the capital intermediary business is developing, market competition for FICC business has also begun. For example, Hongta Securities disclosed an 8 billion allotment plan, of which 4 billion will be developed for FICC business; Haitong has already continued to do so. Investing more than 10 billion in FICC business.
Huatai Securities analyst Shen Juan pointed out that the core of FICC business is to provide institutional customers with comprehensive financial services across risk categories and will improve the entire industry chain of securities companies. By connecting the buy-side and sell-side businesses of securities firms, FICC business will develop in line with the general trend of the capital market by broadening business boundaries, focusing on capital-heavy businesses and building industry barriers, and is expected to become the core breakthrough for domestic securities firms’ innovative business formats. “Broker firms need to accelerate the construction of capital strength. , product creation, trading, investment, risk control, technology, and business synergy with seven core competencies to compete in the world with professional strength. ”
Wang Yifeng said that the current average valuation of the A-share brokerage industry is around 1.6 times PB, and the valuation is in the area below the historical center. In the future, there will be catalysts such as capital market reform and further opening up of business. Investment The value is relatively high
Reporter’s observation:
The choice of asset-heavy securities model
China Fund News reporter Zhang Li
A lot. People may wonder why the profitability of the brokerage industry, which has always been called the "bull market standard bearer", has been unable to escape the impact of cyclical market fluctuations for so many years. What is the business that is changing after so many years of industry transformation? p>
To answer these questions, we actually need to observe the business model of the securities industry itself. Behind the profitability performance of various branches of securities firms, the different path choices of asset-light business and asset-heavy business are profoundly affecting the industry. Overall valuation evaluation and profitability.
The so-called asset-light business mainly refers to businesses that rely on brokerage licenses to achieve profits, including brokerage business, investment banking business, and asset management business. In the past, the core of the financial industry. Most business models are regarded as "licensed business". Securities companies use the commission model to expand the market, and have formed an obvious "depending on the weather" business model.
"If you don't open for three years, you will get three if you open." "year" is a vivid portrayal of the cyclical performance of the traditional brokerage business of securities companies. From the changes in A-share market prices and financial statements in previous years, it is not difficult to find that this pattern has also become an important indicator for investors to judge the valuation space of securities companies' stocks. .
After the bull market turned around in 2015, brokerage institutions gradually began to realize that the profit margins of the traditional commission model were becoming increasingly thin. This was due to the relaxation of license management restrictions and the scarcity of brokerage business. Sex no longer leads to crazy price wars and fierce industry competition.
Some securities and investment bankers once lamented: "Even among leading securities firms, there are many cases of price competition in investment banking projects. This means that the homogeneous competition in the industry behind the traditional asset-light model is very serious. In this way Who can make money from this project? ”
From March 2010 to May 2013, the capital market pilot margin trading and stock pledge repurchase business allowed securities companies to open new business models. Its balance sheet has also been able to expand rapidly, and its profit model has also begun to undergo a significant asset-heavy process. The rising proportion of capital intermediary and equity investment businesses undoubtedly proves that the securities firm model is gradually transforming into an "asset-heavy" model.
The so-called asset-heavy business refers to businesses in which securities firms rely more on the expansion of balance sheets to obtain profits, such as self-operation, market making, direct investment and capital intermediary business. The 2020 securities industry operating data released by the China Securities Association shows that the industry's revenue and net profit increased by 24.41% and 27.98% respectively year-on-year in 2020. As of the end of 2020, the industry's total assets and net assets had increased by 22.50% and 14.10% year-on-year respectively.
In this round of securities firm asset expansion, the contribution of capital intermediary and investment businesses has soared rapidly. For example, CITIC Securities announced a 28 billion allotment plan, and most of the financing will be invested in capital intermediary and other businesses. At the same time, Guohai Securities, Dongxing Securities, and Guolian Securities have successively announced refinancing plans, which also regard the increase in the scale of credit trading businesses such as margin trading and securities lending as an important foothold for capital expansion.
CITIC Securities clearly stated: "The capital intermediary business has the characteristics of a wide range of customers, rich products, stable interest rate spreads, and controllable risks. It is a business direction that the company has focused on cultivating in recent years." According to industry insiders, securities companies are currently raising funds through a variety of methods and making financial preparations, which will help increase securities companies’ profits and business income in the future.
At the same time, under the profound influence of the registration system reform, the "investment banking + direct investment" model has gradually formed in the process of securities firms competing for IPO projects; at the same time, industrial funds, M&A funds have also become the direction of the expansion of investment banking business, and the layout of these businesses will also mean the investment of huge amounts of capital. Judging from the current industry situation, CITIC Securities, CICC, and CITIC Construction Investment, the three "pioneer investment banks", have outstanding advantages, and their financing speed is also accelerating year by year.
Even Oriental Fortune Securities, which focuses on asset-light operations, has begun to put forward the strategic goal of focusing on asset-heavy businesses such as margin trading and securities lending in the past two years. In 2020, its parent company Oriental Fortune issued bonds for financing twice, with a cumulative financing scale of 23.1 billion yuan, of which 20.5 billion yuan was invested in heavy asset businesses such as credit trading business and expansion of financial and financial services.
Regarding the reasons for financing, Oriental Fortune stated that with the rapid expansion of the business scale of Oriental Fortune Securities, compared with comparable securities firms with similar brokerage business scale, Oriental Fortune Securities has a large gap in net capital indicators. At the same time, , the shortcoming of insufficient capital scale has further restricted the debt financing capabilities of Oriental Fortune Securities, causing the business expansion of Oriental Fortune Securities to be increasingly severely restricted by funding bottlenecks.
In the process of heavy assetization, the valuation methods of securities companies will also usher in adjustments. According to Guosen Securities research and analysis, while asset-heavy business has increased the operating leverage of securities firms, it has also lowered the ROA level of the industry, which is reflected in the overall decline in ROE elasticity. The valuation method applicable to the industry is determined by the business model. Under the heavy-asset model, profits come from the expansion of the balance sheet, so the volume of net assets basically determines its profitability. The valuation of the securities industry will undoubtedly be more suitable for PB valuation. Law. "The lower valuation level and clear company strategic positioning are the main reasons why we recommend the brokerage sector."
In addition, with reference to the development history of overseas investment banks, the increase in the leverage ratio of brokerage institutions and the importance of The assetization model has become an industry trend. The gradual asset-heavy business model of securities companies, and the gradual development of capital intermediary business and institutional trading business, mean that the industry's ROE level will usher in a clear turning point opportunity in the future, and leading securities companies have become the focus of capital attention.