20180924-中国银河国际证券-Industry_Note__Time_to_revisit_Hong_Kong_brokerages_amid_US_dollar_weakness_5页_1mb

Hong Kong Securities Sector Summary

Core Content

This document is an industry note issued by China Galaxy International Securities (Hong Kong) on September 24, 2018, focusing on the Hong Kong securities sector, particularly on brokerage stocks. It provides analysis and investment recommendations based on current market conditions, valuation metrics, and sector performance.

Main Viewpoints

1. US Dollar Weakness and Its Impact on the Hong Kong Market

• The dollar index has weakened in the past two weeks due to factors such as stabilization of some emerging market currencies (e.g., Turkish lira, Brazilian real) and hawkish tone from central banks in developed markets (e.g., UK, Sweden, Canada).
• There is a strong negative correlation between the dollar index and the Hang Seng Index (HSI), suggesting that continued dollar weakness could lead to a rebound in the HSI.
• The FOMC meeting on September 25 and 26 may provide insight into the likelihood of further rate hikes in December.

2. Hong Kong Brokerage Stocks: A Revisit Opportunity

• The Hong Kong securities sector is considered a high beta sector, meaning it is more sensitive to market movements.
• Brokerage stocks, particularly Haitong International (HTI) and Guotai Junan International (GTJAI), have shown strong rebounds in daily turnover, reaching HK$131bn last Friday, the highest since July 3.
• The sector has been one of the weakest YTD, with some stocks dropping ~40% this year, indicating potential upside.

3. Valuation Analysis

• HTI and GTJAI are currently trading at bearish valuations based on PBR (Price to Book Ratio), which is 0.62x and 0.99x for 2018E, respectively.
• These valuations are below historical averages by 1.3x and 1.1x standard deviations, suggesting higher upside potential.
• HKEx (0388.HK), while also in a downtrend, has only fallen ~8.5% YTD, largely in line with the HSI, making it less attractive compared to HTI and GTJAI.

4. Comparison with China Brokerages

• Although China brokerages are also trading below book value, Hong Kong brokerages are preferred due to:
  • Less regulatory uncertainty compared to China.
  • Easier risk management in margin financing and stock pledged lending.
  • Lower A-share trading volume (RMB321bn last Friday), which may not improve significantly in the near term.

Key Information

Company	Ticker	Last Price (HK$)	TP (HK$)	Rating
HKEx	388 HK	229.00	300.4	BUY
HTI	665 HK	2.87	4.45	BUY
GTJAI	1788 HK	1.43	2.65	BUY

Financial Metrics (FY2018E)

Company	PER (x)	PBR (x)	ROAA (%)	ROAE (%)
HKEx	31.20	7.29	2.80	23.10
HTI	7.22	0.62	1.50	8.40
GTJAI	8.63	0.99	1.70	13.00

Investment Rating Explanation

• BUY: Expected share price increase >20% within 12 months.
• SELL: Expected share price decrease >20% within 12 months.
• HOLD: No clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL.

Conclusion

The Hong Kong securities sector, particularly brokerage stocks, presents attractive investment opportunities due to the weakness in the US dollar, strong rebound in market turnover, and undervalued positions. HTI and GTJAI are highlighted as more attractive than HKEx, given their higher upside potential and lower valuations. Investors are advised to revisit the sector with a positive outlook.

Disclaimer

• This report is for institutional clients and is based on reliable information sources.
• No representation or warranty is made regarding the accuracy or completeness of the information.
• The report is not an offer to buy or sell any securities.

Disclosure of Interests

• China Galaxy Securities Co., Ltd. is the parent company of China Galaxy International.
• There may be financial interests in the companies discussed, potentially equal to or exceeding 1% of their market capitalization.
• Analysts may have conflicts of interest due to past or current investment banking relationships.

Analyst Certification

• The analyst certifies that the views expressed in the report accurately reflect their personal opinion.
• The analyst does not trade in the securities covered in the report within 30 days prior to the report's release or three business days after.

Copyright

• No part of this document may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited.