20170919-中国银河国际证券-Industry_Note_12页_1mb

Industry Note Summary: China Securities Sector (September 19, 2017)

Core Content Overview

This document provides an analysis of the performance and valuation of China's securities sector, with a focus on key companies such as CITICS (6030 HK), HTS (6837 HK), and GFS (1776 HK). It outlines the recent trends in business performance, share price movements, and financial metrics, suggesting that the sector may have room for recovery and share price appreciation.

Main Points and Key Insights

1. Recent Share Price and Market Performance

• Rally in the sector: The China securities sector showed a rally on the previous day, indicating a potential start of a broader upward trend.
• Improvement in key businesses: Brokerages, margin financing, and investment banking have shown signs of improvement in August and September, but share prices have not reflected this performance.
• Sector underperformance: The China securities sector has underperformed compared to insurance and banks over the past 6 months.

2. Business Performance

• Q2 2017: Weak performance due to low trading volume and reduced margin financing balance in the A-share market.
• Recent recovery:
  • A-share average daily turnover (ADT) increased significantly from RMB384bn in June to RMB599bn in September.
  • Margin financing balance rose from RMB860bn in June to RMB980bn in mid-September.
  • Equity and bond fundraising also showed improvement in August.

3. Valuation and Target Prices

• Valuation Table:
  • CITICS (6030 HK): Price of HK$18.30, Market Cap of US$32,940m, PBR of 1.26, ROAE of 7.24%.
  • HTS (6837 HK): Price of HK$13.24, Market Cap of US$24,458m, PBR of 1.11, ROAE of 7.85%.
  • GFS (1776 HK): Price of HK$17.22, Market Cap of US$21,181m, PBR of 1.31, ROAE of 11.03%.
• Moderate upward revision of target prices:
  • HTS: Target price of HK$15.7, upside of 18.6%.
  • CITICS: Target price of HK$16.4, upside of -10.5% (indicating a potential downward revision).
  • GFS: Target price of HK$21.2, upside of 23.2%.
• Overall valuation trends:
  • The sector is seen as undervalued compared to other financial sectors, offering potential for share price performance to catch up.

4. Financials of GF Securities (1776 HK)

• Income Statement:
  • Revenue and expenses show a consistent trend, with a focus on commission and fee income, interest income, and net investment gains.
  • EPS growth is expected to be positive in 2017 and 2018, with a CAGR of 12.5%.
  • ROAE is projected to increase from 10.3% in 2017 to 11.5% in 2018.
• Balance Sheet:
  • PBR has declined over the years, but is still considered reasonable.
  • Total assets have grown significantly, with a leverage ratio of 4.4x.
  • Non-client asset/net asset ratio is around 3.4x, indicating a strong asset base.
• Key financial ratios:
  • PER has decreased from 28.8x in 2013 to 12.3x in 2017.
  • EPS growth is expected to be 39% in 2017 and 12% in 2018.
  • Yield has increased from 1.5% to 3.1%.
  • Payout ratio remains stable at 35%.

5. Financials of Haitong Securities (6837 HK)

• Income Statement:
  • Commission and fee income, interest income, and net investment gains have shown improvement in recent months.
  • EPS growth is expected to be 10.6% in 2017 and 14.7% in 2018.
  • ROAE is projected to increase from 7.4% in 2016 to 8.5% in 2018.
• Balance Sheet:
  • PBR has decreased over the years, but is still seen as reasonable.
  • Total assets have grown, with a leverage ratio of 4.4x.
  • Non-client asset/net asset ratio is around 3.4x.
• Key financial ratios:
  • PER has decreased from 16.5x in 2016 to 14.5x in 2017.
  • EPS growth is expected to be 10.6% in 2017 and 14.7% in 2018.
  • Yield has increased from 1.5% to 2.1%.
  • Payout ratio is stable at 35%.

6. Investment Recommendations

• Reiterate BUY ratings: On GF Securities (1776 HK) and Haitong Securities (6837 HK).
• HOLD rating: On CITICS (6030 HK).
• Reasoning: The improving fundamentals of the sector, particularly in key businesses, suggest potential for share price performance to catch up, especially compared to insurance and banks.

Conclusion

The China securities sector has shown signs of recovery in key business segments such as brokerages, margin financing, and investment banking. Despite this, the share price has not fully reflected the positive performance, indicating potential for future gains. GF Securities and Haitong Securities are highlighted as strong performers with upward revisions in target prices, while CITICS remains a HOLD due to its current performance and valuation. The sector's underperformance relative to other financial stocks and the improved fundamentals suggest a favorable outlook for future share price movements.