Author | Zheng Li, Yao Yue
Source | Unicorn Finance
On April 12, Haitong Securities (600837. SH;6837.HK).
In the morning of the same day, with the report card of the net profit attributable to the parent company plummeting by 8%, Haitong Securities held the 2023 annual performance briefing, and in the afternoon, China's capital market welcomed the third "National Nine Articles" after 10 years (the State Council issued the "Several Opinions on Strengthening Supervision and Preventing Risks and Promoting the High-quality Development of the Capital Market", making specific arrangements from nine aspects. In the evening, Haitong Securities announced that the nuclear titanium dioxide (002145. SZ) shares were transferred in violation of regulations, and the company has been filed by the Securities Regulatory Commission.
The brokerage involved in the incident was also filed with CITIC Securities (600030. SH）。 In response to the two leading brokerages being filed, many investors in the Oriental Fortune Stock Bar left messages such as "Happy!", "Praise with both hands!", "Must be cracked down" and so on.
Pi Haizhou, a financial commentator, said that strict inspection of securities firms will definitely be good for the capital market. Whether a brokerage is compliant and legal is largely related to the health of the capital market. "If there is a problem with the brokerage, it should be investigated immediately. ”
As of the close of trading on April 12, Haitong Securities' share price fell 3.41% to 7.94 yuan per share, with a total market value of 103.7 billion yuan.
1
Why was Haitong Securities filed?
On the evening of April 12, Haitong Securities announced that the company had been filed by the China Securities Regulatory Commission on March 13. Regarding the reason for the filing, the relevant disclosure is only one sentence, but it clearly points to the fixed increase of the listed company China Nuclear Titanium Dioxide in 2023. Haitong Securities is one of the subscription targets of this private placement. At the same time, CITIC Securities, which was filed on the case, was the sponsor and joint lead underwriter of the private placement.
According to the announcement of Haitong Securities, the China Securities Regulatory Commission decided to file a case against the company because the company was suspected of violating laws and regulations in the process of transferring the non-public issuance of shares of China Nuclear Titanium Dioxide in 2023 in violation of restrictive regulations.
On the evening of the same day, China Nuclear Titanium Dioxide also issued an announcement about being filed. Different from Haitong Securities, China Nuclear Titanium Dioxide said that it was its actual controller Wang Zelong who received the "Notice of Case Filing", and in addition to being suspected of violating the restrictive provisions of the transfer of China Nuclear Titanium Dioxide's non-public issuance of shares in 2023, he was also suspected of illegal information disclosure and other violations of laws and regulations.
The main business of CNNC titanium dioxide is the research and development, production and sales of rutile titanium dioxide, with three production bases in Jiayuguan, Gansu, Baiyin, and Maanshan, Anhui, which officially landed on the Shenzhen Stock Exchange in 2007 and is the earliest supplier of titanium dioxide in China.
It is worth mentioning that Wang Zelong, the actual controller of CNNC titanium dioxide, was born in July 1996 and is now 27 years old. At the end of 2019, Wang Zelong became the actual controller of CNNC titanium dioxide. In the list of the world's youngest billionaires in 2021 released by Forbes, Wang Zelong ranked second with 1.5 billion US dollars (equivalent to nearly 10 billion yuan).
In the above announcements, it is mentioned that China Nuclear Titanium Dioxide will issue shares non-publicly in 2023. According to Wind information, in 2023, China Nuclear Titanium Dioxide will only complete one fixed increase.
According to the announcement of China Nuclear Titanium Dioxide on February 23, 2023, it intends to issue 893 million shares to 16 specific targets at an issue price of 5.92 yuan per share, raising a total of 5.288 billion yuan and a net amount of 5.249 billion yuan.
Haitong Securities is one of the subscription targets of the project. According to the announcement, Haitong Securities subscribed for a total of 92,398,600 shares at an allotted price of 547 million yuan, and its subscription amount was second only to CICC's 553 million yuan among the 16 subscription targets.
Regarding the reason for filing the case, the above announcement stated that "it was suspected of violating laws and regulations in the process of transferring the non-public issuance of shares of China Nuclear Titanium Dioxide in 2023 in violation of the restrictive provisions by relevant entities". One possibility of "transfer in violation of restrictive provisions" is the transfer of shares during the restricted period, that is, the lending of restricted shares.
According to the relevant regulations of the China Securities Regulatory Commission and the Shenzhen Stock Exchange, the shares subscribed for by the issuer shall not be transferred within 6 months from the date of listing of the new shares.
The restriction period of the above-mentioned private placement shares of CNNC Titanium Dioxide is from March 3, 2023 to September 19 of the same year. That is to say, during this period, 16 subscribers, including Haitong Securities, could not transfer the corresponding subscribed shares of CNNC titanium dioxide.
It is worth noting that shortly before the fixed increase of CNNC titanium dioxide, the balance of CNNC titanium dioxide showed sharp fluctuations. According to Wind data, before February 9, 2023, the balance of CNNC's titanium dioxide financing and securities lending was still in the order of 2 million yuan to 5 million yuan for a long time, but it increased sharply from February 10, 2023 to more than 600 million yuan on February 17, 2023. In the following six months, the balance of CNNC's titanium dioxide financing was at a high level of 4-600 million yuan, until September 14, 2023, when it began to plummet.
Source: Wind Financial Terminal
At the same time, the share price of CNNC titanium dioxide also fluctuated. Around the beginning of 2023, the share price of China Nuclear Titanium Dioxide began to rise, from 6.1 yuan / share at the close of trading on December 29, 2022, all the way up, to a small high point of 8.01 yuan / share on February 10, 2023, but since then, the share price of China Nuclear Titanium Dioxide has been on a downward trend as a whole.
Source: Wind Financial Terminal
According to Wind data, as of the close of trading on September 14, 2023, China Nuclear Titanium Dioxide reported 5.86 yuan / share, down 26.84% from the high point of 8.01 yuan / share on February 10 of that year.
With the development of the market, in recent years, investors have used more and more hedging tools, such as futures indexes, options, etc., which are frequently used, and securities lending is also one of them. However, the securities lending business has been controversial.
Pi Haizhou believes that the business is unfair to many investors. On the one hand, the vast majority of investors cannot borrow securities, let alone restricted shares; on the other hand, investors' stocks cannot be T+0, while securities lending can be sold on the same day, which is equivalent to a disguised T+0 operation.
Since the beginning of this year, the China Securities Regulatory Commission (CSRC) has also been continuously strengthening the supervision of securities lending and lending. On April 12, the China Securities Regulatory Commission (CSRC) proposed to stipulate that major shareholders of listed companies are not allowed to sell their shares through securities lending. Previously, on January 28, the China Securities Regulatory Commission also announced a complete suspension of the lending of restricted shares, and adjusted the market-based declaration of refinancing securities from real-time availability to next-day availability, restricting the efficiency of securities lending and lending.
"It's about reducing and changing this inequality. Pi Haizhou said.
2
Winning the top three in a row, the "myth" is shattered?
To what extent has this brokerage's performance reached in 2023?
Unicorn Finance found that from the performance of the top ten brokerages, Haitong Securities' net profit attributable to the parent ranked last, you know, in 2018-2020, Haitong Securities once ranked among the top three in the market.
The nine brokerages in front of Haitong Securities' performance are CITIC Securities, Huatai Securities, Guotai Junan, China Merchants Securities, China Galaxy, GF Securities, China Securities Construction Securities, CICC, and Shenwan Hongyuan.
The net profit of these 9 brokerages with a net profit of more than 10 billion yuan is CITIC Securities and Huatai Securities, and the net profit attributable to the parent of the two brokerages in 2023 will be 19.721 billion yuan and 12.751 billion yuan respectively; Guotai Junan's net profit attributable to the parent is 9.37 billion yuan, and the net profit attributable to the parent of the remaining 5 companies is more than 6 billion yuan; even Shenwan Hongyuan, which ranks 9th in performance, has a net profit attributable to the parent of 4.606 billion yuan, which is about 3.6 billion yuan higher than Haitong Securities.
Why is the decline so severe?
Looking at Haitong Securities' 2023 financial report, from the perspective of revenue, the fee and commission income fell by 19.27% to 9.353 billion yuan, a decrease of 2.232 billion yuan from the previous year.
This part of the income declined, mainly including the decrease in the net fee income of brokerage business, investment banking business and asset management business, which was 3.83 billion, 3.421 billion and 1.914 billion respectively, down 18.06%, 18.14% and 15.07% year-on-year respectively.
In addition, the significant increase in borrowing interest expenses led to a decrease of 2.2 billion in net interest income, which will be 4.089 billion in 2023, a year-on-year decrease of 34.16%.
Source: Financial report
In 2023, the business income of Haitong Securities' three core sectors will decline. Among them, wealth management, investment banking and asset management business achieved revenue of 8.315 billion yuan, 3.631 billion yuan and 2.649 billion yuan respectively, down 12.03%, 14.8% and 14.16% respectively compared with the same period last year, and gross profit margin decreased by 39.2%, 9.5% and 3.29% respectively.
Source: Financial report
The decrease in investment banking business revenue was mainly due to the year-on-year decrease in IPO financing amount in domestic and overseas markets and the decrease in the company's equity underwriting income, while the decrease in operating income of asset management business was mainly due to the decrease in the management scale of asset management subsidiaries, the reduction of management fee rates and the year-on-year decrease in management fee income.
In addition to the shrinkage of a number of businesses, the losses of its subsidiary Haitong International have also dragged down the profitability of Haitong Securities.
Haitong International is a wholly-owned company of Haitong International Holdings, and Haitong Securities holds 100% of the equity of Haitong International Holdings, i.e., Haitong International is a grandson of Haitong Securities, which is mainly engaged in overseas markets. As of December 31, 2023, Haitong International Holdings had total assets of HK$108.542 billion and net assets of HK$7.786 billion, with revenue of -HK$1.575 billion and net profit of HK$8.156 billion in 2023.
Haitong International, which has been on the Hong Kong market for 27 years, was once known as the "leader" of Hong Kong stock brokers, and the announcement of its proposed privatization and delisting in September 2023 shocked the market.
On January 11, 2024, Haitong International's withdrawal of listing on the Hong Kong Stock Exchange took effect, which means that Haitong International officially became a departure from the Hong Kong Stock Exchange. After the privatization takes effect, Haitong International Holdings will own 100% of Haitong International's shares.
According to the privatization transaction, the offeror, Haitong International Holdings, repurchased the shares at a price of HK$1.52 per share, and the transaction involved a maximum of about HK$3.417 billion.
Regarding the privatization and delisting, Haitong International Holdings has said that if the privatization is successful, it will provide the company with greater flexibility and efficiency in supporting the long-term development of the group, and insulates disinterested shareholders from any potential dilution impact of equity financing activities, short-term earnings expectations, pressure on market expectations, stock price volatility and compliance requirements arising from maintaining its listing status.
Since 2023, at least 20 companies in the Hong Kong stock market have taken the initiative to privatize and delist, including Yashili, Dali Food, Yongsheng New Materials, Jiangnan Group, etc., but there are few companies in the securities industry.
What are the reasons for Haitong International's privatization? Is this related to the low liquidity, low price-earnings ratio, and inability to raise capital in Hong Kong stocks?
3
In the past, the "leader" of Hong Kong stock brokers,
Why was it privatized?
In 2020, it set a historical record with a revenue of HK$8.33 billion, ranking first among Hong Kong brokerages, followed by Huatai International, CITIC International and Guotai Junan International.
Founded in 1996, Haitong International is an overseas grandson of Haitong Securities, and is also a Chinese-funded brokerage company that has deployed overseas business earlier and is listed on the Hong Kong stock market.
According to the financial report, Haitong International mainly has investment banking, asset management, trading and institutional services, wealth management and other business segments. In particular, the sponsorship business income in 2020 is the highlight of Haitong International. In that year, the business raised 7.503 billion yuan, and the largest IPO sponsored by JD Health also occurred in this year, and in 2020, it also sponsored large-scale new stocks and industry leaders such as Tigermed, Bohai Bank, GDS, and Evergrande Property.
As the former head brokerage of Hong Kong stocks, how did it fall from a net profit of HK$3 billion to a loss step by step?
Focus on sponsorship business in recent years. After the sponsorship business peaked in 2020, Haitong International's sponsorship business began to decline in 2021. Wind data shows that in 2021 and 2022, Haitong International's equity underwriting raised HK$5.687 billion and HK$3.364 billion respectively, and since 2023, the business has only raised HK$1.346 billion.
At the beginning of 2022, Haitong International's performance turned downward. In 2023, Haitong International's loss will continue to expand, with a net profit of -7.291 billion yuan. In the previous year, Haitong International had suffered a huge loss of 5.638 billion yuan. Based on this calculation, Haitong International's two-year net profit loss was nearly 13 billion yuan.
In the 2023 annual report, Haitong Securities did not give the reason for Haitong International's huge loss. In terms of main business, in terms of equity financing, in 2023, Haitong International will complete 4 IPO sponsorship projects on the Hong Kong Stock Exchange, 6 Hong Kong IPO underwriting projects, and 2 Hong Kong stock secondary equity financing underwriting projects (excluding old stock block transactions with a transaction size of less than US$25 million).
Compared with the data from 2021 to 2022, Haitong International has completed 47 and 30 equity financing projects in the Hong Kong capital market respectively, with an underwriting scale of US$2.9 billion and US$4.3 billion, ranking second and third in the Hong Kong market respectively.
The actual reason for the net profit loss of Haitong International is related to the well-known real estate companies that have stepped on the thunder.
In August 2022, Sina Hong Kong stocks issued an article "Haitong International's half-year loss of 1.6 billion: stepping on thunder and miniso, it is difficult to escape the nightmare of real estate bonds", which mentioned that Haitong International's performance has declined sharply, in addition to the cold new stock market, the sharp decline in bond underwriting business, and the sharp decline in the company's fixed income net asset value or the main reason.
According to the report, Haitong International's real estate risk exposure is actually very high, taking Haitong Asia High Yield Bond Fund as an example, the real estate position once exceeded 80% in the middle of 2020, and it was not until the end of 2021 that a significant adjustment occurred, and the proportion of real estate holdings in the net value was adjusted to 48.36%. Since then, it has been downward every month, and in August 2022, the real estate holdings were only 15.46%. In its real estate holdings, it has stepped on well-known real estate companies including Evergrande, Fantasia, China Fortune, Kaisa, Zhenro Real Estate and so on.
Source: Screenshot of the original article
Another reason for the huge loss was the increase in Haitong International's credit impairment provision due to the decline in the market price or valuation of collateral, which resulted in an impairment provision of HK$1.588 billion in 2022, which ultimately led to Haitong International's poor performance.
From the perspective of the overall background, Haitong International's delisting is related to the downturn in the Hong Kong market.
Since 2020, the Hong Kong stock market has continued to fall into the dilemma of undervaluation. Earnings ratios have been at historically low levels for several years in a row, many companies are invaluable, their stock prices are struggling to rise, and IPOs have become the norm. Among the 70 Hong Kong-listed companies listed in 2023, 36 companies broke on the first day, accounting for about 51%.
Bai Wenxi, chief economist of IPG China, believes that there may be many reasons why Haitong International chose to privatize and delist. Haitong International has suffered a loss of 10 billion yuan, indicating that the company's operating conditions have serious problems. In addition, Haitong International's share price may also be affected by factors such as market environment, policy risks, and industry competition, resulting in a continuous decline in the company's market value.
Secondly, from the perspective of the market environment, the liquidity and price-to-earnings ratio of the Hong Kong stock market are indeed relatively low, which may also affect the stock price performance of Haitong International. In addition, issues such as the high cost of maintaining a listing and the inability to raise capital may also put pressure on the company's operating conditions.
Bai Wenxi also said that privatization and delisting also have its own advantages. On the one hand, privatization and delisting can provide more flexibility for the company to better respond to changes in the market environment, and on the other hand, it can also provide the company with more sources of capital, such as debt financing, equity financing, etc., to raise funds to support the company's long-term development.
4
Last year, more than 100 IPO sponsored projects, and the rejection rate exceeded 22%
As a leading brokerage, Haitong Securities has extraordinary strength, and the number of IPOs is among the best, but there has also been the problem of IPO projects "breaking through with illness".
Source: Canned Gallery
Wind data shows that in 2022, Haitong Securities voluntarily withdrew 16 IPO projects, with a rejection rate of 11.1%, accounting for the top of the list of top brokerages, and in 2023, Haitong Securities' IPO sponsorship projects will reach 107, 3 joint sponsors, and 24 voluntary withdrawals, with a withdrawal rate of 22.43%, ranking first among the top 4 brokerages with more than 100 sponsors.
According to the self-media "Huabo Business Review", on January 8, Haitong Securities was given a written warning by the Shenzhen Stock Exchange for a number of violations in the process of serving as the sponsor of the initial public offering of shares of Jiangsu World Agricultural Machinery Co., Ltd. and listing on the GEM, and the two sponsor representatives were given a notice of criticism.
It is reported that the IPO financing scale of World Agricultural Machinery reached 6 billion yuan, which is the largest IPO project on the GEM. However, Haitong Securities failed to report and disclose to the Shenzhen Stock Exchange in a timely manner the freezing of the shares of the actual controller of the issuer during the sponsorship process, and did not find that the issuer's accounting foundation was weak, its internal control was imperfect, and its information disclosure was incomplete.
Since 2024, the China Securities Regulatory Commission (CSRC) has continuously released strong regulatory signals, such as "taking responsibility when you declare", "withdrawing after checking", and "walking away", etc., which have frequently appeared in regulatory statements, and some companies that are still in the IPO stage and their sponsors have received regulatory fines one after another. As the IPO enters the era of strict supervision of the whole process, Haitong Securities' "one-stop withdrawal" path may not work.
In the annual report, Haitong Securities put forward the overall requirements for operation in 2024, for the investment banking business line, the company said that it will provide high-quality direct financing services around the real economy, continue to strengthen the integration of internal and external resources in the line, improve the construction of internal control and defense line of "one real, two specialized, and three strict", improve the accountability mechanism, and be a good "gatekeeper" of the capital market with a diligent and conscientious attitude.
What is your opinion on the filing of Haitong Securities, and do you think that the securities lending business should be completely cancelled? Welcome to leave a message to discuss!