In an environment of market turbulence and decline in 2023, the brokerage industry can be described as having high ups and downs, but in the midst of ups and downs on the road to high-quality development, there are wind, rain, and clear weather. Judging from the external environment, since the Federal Reserve's interest rate cut process may be lower than previous market expectations, market volatility will increase, but currently the A-share and Hong Kong stock market valuations are at historically low levels, and market sentiment may already be excessively pessimistic. Therefore, brokerage firms with a balanced business structure and sound management quality have both offense and defense, and have become the focus of market attention.

In 2023, Xingzheng International (06058) continued to achieve high-quality business development. During the period, the company's revenue was $543 million (unit: HKD, same below), up 110.6% year on year; profit attributable to the company's common stock holders was HK$545.643 million, an increase of HK$352 million over the previous year, with a profit of HK$0.0136 per share.

According to the announcement, turning losses into profits is mainly due to revenue growth in the Group's core businesses such as wealth management, trading and investment income. At the same time, increasing internal management capabilities and prudent risk management measures have continuously optimized the quality of the Group's assets and effectively reduced the Group's costs.

Numbers are the best litmus test. In the capital market, Xingzheng International's performance rose by more than 4.7%. As of press release, the company's total market value was about HK$804 million. Considering the current net market ratio of only 0.26, plus the safety cushion formed by stable fundamentals, high-quality current assets, and historically low sector valuations and institutional allocations, Xingzheng International's combination of offense and defense shows allocation value.

The balanced layout of the light and heavy asset business drives the improvement of profit quality

Judging from market development, before 2022, market activity was high, investors' demand for asset management products increased, registration systems were gradually implemented, and listing channels for small and medium-sized enterprises were gradually unblocked. From 2018 to 2022, the share of asset-light businesses in brokers' main business revenue continued to increase. Since 2022, market activity has continued to decline, compounded by the slowdown in equity financing in the second half of 2023, the share of asset-light businesses declined significantly, and asset-heavy businesses recovered strongly and grew rapidly, accounting for 48% of the brokers' main business.

The performance of Xingzheng International is basically the same as the development trend of the industry. During the period, the company was able to double its revenue, which is related to the strong increase in investment income from its own business.

In 2023, the financial products and investment business achieved revenue of 346 million yuan, accounting for about 64% of total revenue; brokerage business revenue of 111 million yuan, accounting for about 20% of total revenue; corporate finance, guarantee finance and asset management achieved revenue of 40.83 million yuan, 30.27 million yuan and 1.52 million yuan respectively, accounting for 8%, 6% and 2% of revenue respectively. The financial products and investment business recovered strongly and quickly became Xingzheng International's largest business, contributing more than 80% of total revenue with the brokerage business. It can be seen that the balanced layout of the heavy asset business helps enhance the performance resilience and long-term space of Xingzheng International.

Looking at the breakdown, there are many major business development highlights.

As far as the brokerage business is concerned, despite being affected by market activity, the company promptly adjusted its business strategy, upgraded and transformed its wealth management business, and used favorable conditions for comprehensive customs clearance between the two places to promote the development of diversified private wealth management businesses such as insurance and products, and achieved certain breakthroughs. By the end of 2023, the company had launched a wide range of financial products, achieving an insurance brokerage business revenue of 7.03 million yuan, an increase of more than 10 times over the previous year. The transformation of brokerage business to wealth management shows that the company's business capabilities are becoming more and more specialized. With the construction and upgrading of the wealth management service ecosystem, it will help Xingzheng International further open up room for growth.

Looking at corporate financing business, the overall ranking of core business indicators remains at the top of the industry. As of the end of 2023, commission revenue from the placement, underwriting and subcontracting of the company's securities was $29.69 million. According to Bloomberg data, the Group completed 100 bond underwriting operations throughout the year, with a bond underwriting amount of US$1,218 billion, ranking 10th among Chinese brokerage firms. Among them, Fujian ranked 3rd in the overall market in terms of underwriting amount of Chinese foreign bonds. At the same time, it helped launch 16 overseas green bond projects. The green bond underwriting scale reached about HK$584 million, introducing far continuous financial activity into the development of the green and low-carbon industry. In the long run, the company's corporate financing business is expected to benefit from capital market reforms for a long time. With a broad customer base and good underwriting capacity, the business is expected to maintain a long-term growth trend.

Looking at asset management business development, during the period, the number of asset management products was 30, and the management scale was HK$6.2 billion. Among them, the flagship fixed-income product CISI Stable Growth Bond Fund SP has maintained steady returns, with a yield of 25.2% since inception.

In terms of guaranteed finance business, during the period, the company continued to optimize the customer structure, reduce the financing scale of low-quality secured margin loans, greatly optimized asset quality, and guaranteed finance business revenue increased 0.56% year-on-year.

In financial products and investment business, the company has always implemented the principle of prudent and prudent investment, strictly screened investment target pools, strictly complied with the Group's various risk limits, added equity investments this year, and seized market opportunities to increase the scale of bond investment. In 2023, the company's return on fixed income investment significantly outperformed the yield of the market benchmark index (Bloomberg Barclays Chinese US Dollar Bond Index). By the end of 2023, financial products and investment revenue increased 7265.53% year-on-year, demonstrating the company's strong capital strength and investment capacity.

Looking at the overall performance of the industry, investing in proprietary business became the winner and loser for brokerage businesses. The optimization of risk indicators guides capital flows to high-quality targets in the equity market, and also promotes the further development of market-making business, derivatives business, and follow-up investment. At the same time, as the capital market recovers, the proprietary business is expected to continue to grow in performance.

Xingzheng International adheres to a neutral and prudent risk appetite, takes into account the balance of risk and return, strengthens the driving force of top-down macroeconomic strategy research on portfolio style and industry allocation, and focuses more on reducing portfolio fluctuations and enhancing the ability to withstand external macroeconomic factors. At the same time, enhance asset utilization capabilities and efficiency, deepen business innovation, and promote the development of overseas derivatives businesses. Proprietary businesses are expected to continue to contribute to increased performance.

In the long run, the diverse and balanced layout of important businesses can achieve collaboration and even “eat more with one fish”, increase the added value of the business and reduce the impact of market fluctuations on performance.

Financial resilience highlights awaiting valuation repair in the brokerage sector

At the same time as strong growth in performance, Xingzheng International's financial resilience was highlighted.

In 2023, Xingzheng International will strengthen capital management, improve asset and liability allocation, and continuously strengthen liquidity risk management and control. In 2023, the company's overall liquidity performance was good. The quick capital indicators of each licensed subsidiary continued to meet regulatory requirements, and high-quality liquid assets were sufficient. By the end of 2023, the company's assets reached 16.552 billion yuan, an increase of 32.71% over the previous year.

In May 2023, Xingzheng International was officially included in the MSCI Hong Kong Micro Stocks Index, fully demonstrating the capital market's recognition of the company's growth potential and confidence in future development prospects.

In recent years, the securities industry has successively introduced reform policies such as the Science and Technology Innovation Board, REITs, the Beijing Stock Exchange, and the comprehensive registration system, and capital market reforms are progressing rapidly. In the long run, with the acceleration of the domestic cycle and the new domestic and international dual cycle development pattern, the position of a capital market hub is increasing. China's securities industry is still in a period of historical opportunity for rapid development. The development of the capital market and the reform and opening up of the financial system will provide the industry with more room for development.

Driven by comprehensive registration system reform, multi-level capital market construction is becoming more and more clear, shortcomings in the basic capital market system are being filled up, investment-side capacity building is being accelerated, and business opportunities for the three major categories of retail, institutional and enterprise customers are fully emerging. The securities industry will show a trend of integrated services, differentiated development, internationalization of competition, and digitalization of operations, laying a solid foundation for the high-quality development of the industry.

In terms of room for growth, the capital market is expected to become a major asset carrying real estate capital, and the securities market has plenty of room for development. Against the backdrop of peaking demand and the lack of speculation on housing and housing, the investment attributes of real estate are gradually weakening, and real estate will return to the essence of housing, which will lead to an outflow of investment capital. Referring to the trends in real estate assets and capital markets before and after the 2008 US housing bubble, this migration process led to a ten-year boom in US stocks. From the perspective of the allocation of major types of assets, the financial asset allocation ratio of Chinese residents is only 31%, which is far below the global average, and there is plenty of room for additional financial assets.

The Zhitong Finance App believes that the current capital market policy dividends are being released at a rapid pace, internal risks are being resolved in an orderly manner, the external environment is stabilizing, and the brokerage sector is at the beginning of a policy boom cycle, waiting for dividends to be paid out and released. With the implementation of policy dividends and the increase in overall market trading activity, the recovery in market turnover and balance of the two finance companies will increase, which in turn will drive the overall brokerage and finance business revenue growth beyond expectations, and brokerage performance is expected to continue to recover and improve.

On the one hand, Xingzheng International strengthens coordination of various business lines within the Group to enhance profitability; on the other hand, it is increasing collaboration with Societe Generale Securities Group, continuing to implement the “double wheel linkage” and “big collaboration” strategies, creating an international professional platform for domestic and external linkage, and forming a new healthy dual cycle development pattern for internal and external development, which is expected to benefit from the high-quality development trend of the industry. Looking at the capital market, the current valuation safety margin in the brokerage sector is high, and there is plenty of room for improvement in valuations. As a target with high performance flexibility, Xingzheng International is expected to become the focus of capital attention.

In summary, Xingzheng International continues to consolidate its basic skills, balance key assets, and help reach a new level of business scale and profitability. In the short term, high performance growth will be a catalytic factor in the short-term market and help the company's capital market performance. In the long run, the brokerage industry has strong momentum. Xingzheng International focuses on collaborative business development. The wealth management business transformation is timely and has outstanding growth capacity. In addition, it is backed by Societe Generale Securities and has strong shareholder strength, which is expected to benefit from industry trends and achieve steady valuation recovery.