2022-01-03-瑞士信贷集团-展望2022_在制度化和财富再分配浪潮中扬帆起航_80页_2mb

China Brokerage Sector Outlook 2022: Sailing on Institutionalisation and Wealth Reallocation Tides

Core Content Summary

The China brokerage sector is expected to benefit from institutionalisation and wealth reallocation trends in 2022, with a focus on increased earnings growth, stability, and improved valuation metrics.

Main Trends and Drivers

• Institutionalisation:

  • Institutional clients drive higher demand for margin financing and securities lending (MFSL) and derivatives.
  • MFSL balance is projected to grow by 16% YoY to Rmb2.2 tn by the end of FY22E.
  • OTC derivative notional balance is expected to rise by 41% YoY to Rmb2.8 tn.
  • The registration-based IPO system is set to be implemented on main boards, which will likely increase the domestic equity fundraising amount by 23% YoY to Rmb1.8 tn.

• Asset and Wealth Management (AM&WM):

  • The sector benefits from high margin and low capital consumption, leading to improved ROE.
  • AUM of securities companies' AM products is estimated to reach Rmb6.9 tn by end of FY22E, with 8% YoY growth.
  • Mutual funds AUM (excluding ETF-linked) is expected to expand by 20% YoY to Rmb29.9 tn.
  • The AM&WM business is estimated to contribute Rmb55 bn in profit to listed securities companies in FY22E.

• Policy Support and Valuation:

  • The sector is supported by accommodative monetary policies and capital market reforms.
  • Net revenue and net profit for the sector are expected to grow by 14% / 17% YoY to Rmb564 bn / Rmb214 bn.
  • Valuation is considered undemanding, with P/B ratio at 0.8x (H-share, last actual), below the five-year average of 0.9x.
  • The CSI300 index is expected to rise to 5,760, offering a 17% upside, which should support the brokerage sector's valuation.

Key Companies and Stock Ideas

• CITICS (A/H):

  • Leader in the sector with a high proportion of institutional clients and strong AM business.
  • ROE expected to rise from 10.4% to 11.1%.
  • Target price for H-share is Rmb25.8, representing a 27% increase from last closing price.

• CICC (H):

  • Well-positioned for institutionalisation with an extensive institutional client base.
  • Integrated wealth management business with superior advisory capabilities.
  • ROE expected to increase from 12.0% to 13.6%.
  • Target price for H-share is Rmb29.5, a 37% increase from last closing price.

• East Money:

  • The only internet-based broker in the A-share market with sticky user traffic.
  • Strong fund sales platform and growing securities business.
  • ROE expected to increase from 23.3% to 24.6%.
  • Target price for A-share is Rmb49.0, a 32% increase from last closing price.

Key Metrics and Growth Projections

• MFSL Balance: Expected to grow by 16% YoY to Rmb2.2 tn.
• OTC Derivatives Notional Balance: Expected to grow by 41% YoY to Rmb2.8 tn.
• Mutual Fund AUM (excl. ETF-linked): Projected to increase by 20% YoY to Rmb29.9 tn.
• Sector Net Revenue: Expected to rise by 14% YoY to Rmb564 bn.
• Sector Net Profit: Expected to increase by 17% YoY to Rmb214 bn.
• Sector ROE: Projected to improve to 8.0% in FY22E from 7.6% in FY21E.
• P/B Ratio: Current 0.8x, below the five-year average of 0.9x.

Key Risks

• Tighter-than-expected monetary policy.
• Delays in the implementation of favorable policies.
• Stronger-than-expected competition and fee rate pressure.

Conclusion

The China brokerage sector is expected to benefit from institutionalisation and wealth reallocation, driven by increased demand for MFSL, derivatives, and asset management services. Policy support and a favorable valuation environment further enhance the sector's outlook. Leading firms like CITICS, CICC, and East Money are well-positioned to capitalize on these trends.