20181204-中国银河国际证券-Better_1H19_Outlook_after_Trade_Negotiations_Last_Week__Upgrade_HTS_and_GFS_to_BUY_12页_1mb

Industry Note Summary

Core Content

This document is an industry analysis of the Chinese securities sector, focusing on three major companies: CITIC Securities (6030.HK/600030.CH), Haitong Securities (6837.HK/600837.CH), and GF Securities (1776.HK/000776.CH). It provides an overview of market sentiment, earnings forecasts, and valuation metrics as of December 3, 2018.

Main Views and Key Information

Market Outlook

• The CSI300 index rose by 2.8% on the previous day, indicating improved market sentiment.
• The trade negotiations between China and the US have created a more positive outlook for the market.
• The A-share market is expected to rebound further due to very low expectations before the G20 Summit.
• The CSI300 has underperformed the MSCI Emerging Markets Index and S&P500 by 10 and 27 percentage points, respectively, on a year-to-date basis.
• The proposed science and technology innovation board may offer new opportunities for investment banking.

Earnings Forecast Revisions

• The 2019E EPS for CITIC Securities, Haitong Securities, and GF Securities are raised by 14%, 29%, and 26.4%, respectively.
• The upward revision is based on an increase in the forecast for average daily turnover (ADT) and net investment gains.
• The earnings decline for 2018E for these companies is expected to be 8.6%, 35.6%, and 39.3%, respectively.

Target Price Adjustments

• The target prices for CITIC Securities, Haitong Securities, and GF Securities are increased by 15.4%, 28.4%, and 24%, respectively.
• The target prices for A-shares are adjusted with a 20%, 36%, and 23% premium over the corresponding H-shares.
• Haitong Securities and GF Securities are upgraded from HOLD to BUY.

Valuation Metrics

• Forward PER (x): The CSI300 is trading near the low-end of its three-year range.
• PBR (x): The PBR for CITIC Securities, Haitong Securities, and GF Securities are 0.99, 0.69, and 0.88, respectively.
• ROAA (%): The return on average assets for CITIC Securities, Haitong Securities, and GF Securities are 1.67%, 1.19%, and 1.63%, respectively.
• ROAE (%): The return on equity for these companies are 6.77%, 5.57%, and 6.88%, respectively.

Financial Performance

• The A-share market ADT is revised upward from RMB330bn to RMB380bn for 2019E, in line with 2018E levels.
• The securities companies are expected to see a recovery in earnings due to the improved market sentiment and a rebound in net investment gains.
• The margin financing business may benefit from the improved market sentiment and could lead to further earnings upside.

Risk Factors

• Unfavourable trade negotiations outcome.
• Tighter-than-expected market liquidity.
• RMB depreciation.
• Further decline in ADT.

Key Financials Summary

CITIC Securities (6030.HK/600030.CH)

• Income Statement:
  • Investment banking revenue: Increased from RMB3,516,440 in 2014 to RMB4,769,994 in 2019E.
  • Brokerage revenue: Increased from RMB10,365,206 in 2014 to RMB10,795,602 in 2019E.
  • Net investment gains: Increased from RMB10,204,336 in 2014 to RMB13,624,000 in 2019E.
  • Total revenue and other income: Increased from RMB37,345,858 in 2014 to RMB59,759,505 in 2019E.
• Balance Sheet:
  • Total assets: Increased from RMB479,626,450 in 2014 to RMB709,572,140 in 2019E.
  • Shareholders’ equity: Increased from RMB99,098,670 in 2014 to RMB161,964,734 in 2019E.
  • Book value per share (HK$): Increased from HK$11.42 in 2014 to HK$15.37 in 2019E.
• Financial Ratios:
  • PER (x): Increased from 13.6 in 2014 to 14.9 in 2019E.
  • PBR (x): Decreased from 1.33 in 2014 to 0.99 in 2019E.
  • ROAA (%): Decreased from 2.72% in 2014 to 1.67% in 2019E.
  • ROAE (%): Decreased from 10.4% in 2014 to 6.8% in 2019E.

Haitong Securities (6837.HK/600837.CH)

• Income Statement:
  • Investment banking revenue: Increased from RMB1,309,095 in 2014 to RMB2,622,548 in 2019E.
  • Brokerage revenue: Increased from RMB9,516,170 in 2014 to RMB10,504,338 in 2019E.
  • Net investment gains: Increased from RMB5,708,662 in 2014 to RMB6,010,504 in 2019E.
  • Total revenue and other income: Increased from RMB23,666,866 in 2014 to RMB42,100,446 in 2019E.
• Balance Sheet:
  • Total assets: Increased from RMB616,108,242 in 2014 to RMB709,572,140 in 2019E.
  • Shareholders’ equity: Increased from RMB139,137,787 in 2014 to RMB161,964,734 in 2019E.
  • Book value per share (HK$): Increased from HK$13.89 in 2014 to HK$15.37 in 2019E.
• Financial Ratios:
  • PER (x): Increased from 13.7 in 2014 to 14.9 in 2019E.
  • PBR (x): Decreased from 1.10 in 2014 to 0.69 in 2019E.
  • ROAA (%): Decreased from 2.1% in 2014 to 1.67% in 2019E.
  • ROAE (%): Decreased from 16.6% in 2014 to 6.8% in 2019E.

GF Securities (1776.HK/000776.CH)

• Income Statement:
  • Investment banking revenue: Increased from RMB4,563,090 in 2014 to RMB4,769,994 in 2019E.
  • Brokerage revenue: Increased from RMB12,574,497 in 2014 to RMB10,795,602 in 2019E.
  • Net investment gains: Increased from RMB19,510,014 in 2014 to RMB13,624,000 in 2019E.
  • Total revenue and other income: Increased from RMB50,064,772 in 2014 to RMB59,759,505 in 2019E.
• Balance Sheet:
  • Total assets: Increased from RMB625,574,644 in 2014 to RMB709,572,140 in 2019E.
  • Shareholders’ equity: Increased from RMB142,695,946 in 2014 to RMB161,964,734 in 2019E.
  • Book value per share (HK$): Increased from HK$13.54 in 2014 to HK$15.37 in 2019E.
• Financial Ratios:
  • PER (x): Increased from 15.5 in 2014 to 14.9 in 2019E.
  • PBR (x): Decreased from 1.13 in 2014 to 0.88 in 2019E.
  • ROAA (%): Decreased from 3.72% in 2014 to 1.67% in 2019E.
  • ROAE (%): Decreased from 16.6% in 2014 to 6.8% in 2019E.

Conclusion

The document highlights the positive outlook for the Chinese securities sector following recent trade negotiations and improved market sentiment. It provides updated earnings forecasts and target prices for three major companies, with Haitong and GF Securities upgraded to BUY. The analysis suggests that the A-share market may rebound further, and the securities companies are likely to see an earnings recovery in 2019E. However, there are several risks to consider, including unfavourable trade outcomes, tighter liquidity, and RMB depreciation.