The Zhitong Finance App learned that Huatai Securities released a research report saying that the current policy is still in a virtuous cycle, and it is expected that measures to activate the capital market will be further implemented in the future, boosting market sentiment and trading activity. Moreover, the brokerage sector is undervalued and underallocated. The brokerage index PB (LF) is at 21.6% in 19 years; 23Q2 fund holdings are 0.37%, at the lowest point in 18 years.The configuration is cost-effective.I am optimistic that the brokerage sector will continue to repair the market.

▍ The main views of Huatai Securities are as follows:

Investment performance continues to be flexible, and investment banks' equity size is under pressure

Investment performance continues to be flexible and drives growth; investment industry performance is divided, and equity business is under pressure. The 23H1 main market index was stable compared to the same period last year. The equity investment positions of leading brokerage firms increased, and revenue growth continued, totaling +40% year-on-year. The Matthew effect in the derivatives business is remarkable. Earlier, the Securities Regulatory Commission mentioned the optimization of brokers' leverage ratio policies, and the derivatives business is expected to reach a higher level in the future.

In terms of equity investment, the performance of private equity subsidiaries is internally fragmented, and alternative subsidiaries reverse losses year on year. It is expected that the pressure to follow up investment will ease somewhat. On the investment banks side, IPOs are being phased in and are expected to continue to be under pressure in the second half of the year. The equity business of leading brokerage firms has generally contracted, but the volume of bond underwriting business has increased, and most of the net income of investment banks has declined, totaling -11% year-on-year.

Brokerage revenue has generally declined, and interest income has been internally segmented

There is still pressure to reduce commissions in the brokerage business, deepening the transformation of buyers; the interest business is clearly differentiated, and the two are relatively stable. The share of leading brokerage firms in the stock market has mostly increased, but commission rates have declined, and the equity market continues to fluctuate, and revenue from consignment financial products has mostly declined. However, market fluctuations have not changed the long-term undertone of wealth management transformation. The Securities Regulatory Commission has clarified rate reform measures for public funds and consignment agencies, and at the same time pushed fund investment pilots to become routine. In the future, a transformation of the charging model for big wealth chain products is imperative, and there is still plenty of room for fund investment business development.

In terms of interest business, interest expenses of some leading brokerage firms were under pressure, and total net interest income was -22% year-on-year. The scale of the top two loans increased slightly and the market share remained stable. The effect of concentration at the top of the securities lending business was still obvious. CR2 reached 43%; some brokerage firms have fully impaired value, achieving full depreciation and increased profits.

Fund companies have performed steadily, and their contribution to international business has increased

The scale of asset management has shrunk, and fund contributions have been steady; international business profit performance has been differentiated, and revenue contributions have increased. The scale of asset management by large brokerage firms has shrunk, and net revenue performance has been differentiated. The financial performance of holding/shareholding fund companies is differentiated, but the overall profit contribution is steady. The profit contributions of fund companies owned by GF and China Merchants Holdings contributed 23% and 16%.

In terms of international business, judging from the performance of Hong Kong subsidiaries, the profits of the subsidiaries of large brokerage firms are divided, and some are still losing money; judging from the consolidated international business income, the overseas revenue of large brokerage firms has generally increased, and the revenue contribution has also increased.

Multi-dimensional policies continue to be favorable and seize opportunities for brokerage allocation

I am optimistic about future market recovery in the brokerage sector driven by policy and valuation. The current policy is still in a virtuous cycle. It is expected that measures to activate the capital market will be further implemented in the future, boosting market sentiment and trading activity. Moreover, the brokerage sector is undervalued and underallocated. The brokerage index PB (LF) is at 21.6% in 19 years; 23Q2 fund holdings are 0.37%, at the lowest point in 18 years, and the allocation is cost-effective.

Optimistic about the continuation of the brokerage sector repair market, it is recommended to explore special high-quality brokerage firms based on the following dimensions, such as: industry leaders with a high proportion of brokers; brokerage firms with a high proportion of brokers; brokerage firms leading large asset management and wealth businesses; and special regional brokerage firms.

Risk warning:

Policy risk, risk of market fluctuations.