In August, the mid-report market will be intensively opened. The brokerage sector, which is regarded as the "flag bearer of the bull market", continues to attract market attention.
Generally speaking, earnings forecasts allow investors to grasp the performance of listed companies earlier and faster. From the perspective of the brokerages that disclosed the performance forecast, the net profit growth in the first half of the year was significantly differentiated, and some listed brokerages were affected by business factors, and the net profit fell by more than 50% year-on-year.
The performance of securities companies is highly linked to the market, and the profitability is highly volatile. Taking Huaxi Securities as an example, its net profit plummeted by more than 90% in the first half of the year, and many business lines were under pressure: brokerage and wealth management business revenue declined, proprietary business fluctuations dragged down performance, and investment banks frequently received fines to expose compliance and other problems.
The weak performance is also affecting the company's share price movement. As of the close of trading on August 6, the share price of Huaxi Securities was 6.73 yuan / share, down more than 12% from 7.69 yuan / share at the beginning of the year.
The downward trend has long been underway
Recently, Huaxi Securities announced that it will transfer 20% of the shares of Tianfu (Sichuan) United Equity Exchange Center Co., Ltd. (hereinafter referred to as "Tianfu Stock Exchange Center"). In recent years, the revenue of Tianfu Stock Exchange Center has declined, and the investment income brought to Huaxi Securities has also been negative year after year.
Huaxi Securities' performance was also under pressure. According to the 2024 semi-annual performance forecast disclosed by the company, the net profit attributable to shareholders of listed companies was 35 million to 45 million yuan, a year-on-year decrease of 91.42%-93.33%, and the net profit after deducting non-recurring gains and losses decreased by 90.82%-92.75% over the same period last year.
According to public information, Huaxi Securities was established on the basis of the merger and reorganization of the former Sichuan Securities Co., Ltd. and Sichuan Securities Exchange Center, and was listed on the main board of the Shenzhen Stock Exchange in February 2018 after several capital increases and share expansions.
The company's main businesses include wealth management, proprietary investment, investment banking, asset management business, and other businesses including overseas business, futures, alternative investment, and private equity fund management.
In fact, the decline in the performance of Huaxi Securities has been hinted at in the past two years. In 2022 and 2023, Huaxi Securities' revenue will decline by 34.1% and 5.77% respectively from the same period last year. In terms of net profit attributable to the parent company, it will decline by 74.12% year-on-year in 2022; In 2023, there will be no significant fluctuations, which can be regarded as a breather. The performance in the first half of 2024 shows that it is under more downward pressure.
Regarding the reasons for the decline in performance disclosed this time, Huaxi Securities said that in the first half of 2024, the company's brokerage and wealth management business revenue declined; The investment business fluctuated greatly, and the corresponding income decreased more; The impairment loss of existing financial assets increased year-on-year. As a result, the company's operating performance in the first half of 2024 declined.
Based on the reasons for performance fluctuations disclosed by various brokerages, proprietary business has become a key factor in determining the performance of brokerages. Affected by multiple factors such as market conditions, Huaxi Securities' net income from self-operated business in the first quarter was 44 million yuan, a year-on-year decrease of 89.77%.
Huaxi Securities' 2023 annual report shows that brokerage and wealth management business, which accounts for "half of the main revenue", but the proportion of total operating income has decreased from 64.50% in 2022 to 59.61%, and the current revenue is 1.896 billion yuan, a year-on-year decrease of 12.92%.
In addition, due to the market and industry environment, Huaxi Securities' private asset management business was under great pressure, and the income of asset management business decreased by 47.60% year-on-year.
Investment banking business frequently collects fines
Generally speaking, the investment banking business of securities companies mainly provides financial services to institutional customers, including stock underwriting sponsorship, bond underwriting, mergers and acquisitions financial advisory, and NEEQ recommendation.
The data shows that the investment banking business of Huaxi Securities is not performing well. In the first quarter of 2024, Huaxi Securities achieved a net income of 18.546 million yuan from investment banking fees, a decrease of 39.9% from the same period last year.
Frequent fines have also had an impact on the business. On May 6, Huaxi Securities announced that it had received a penalty from the Jiangsu Securities Regulatory Bureau and was suspended from sponsorship for six months.
After investigation, Huaxi Securities had irregularities in the practice process of the non-public issuance of shares sponsored by the enterprise "Jin Tongling" in 2019: the due diligence work was suspected of not being diligent and conscientious, and there were false records in the sponsorship letter for the issuance of shares to specific targets; The relevant reports issued during the continuous supervision stage are suspected of having false records; Continuous supervision of on-site inspections is suspected of not being carried out properly.
Industry insiders believe that after being suspended from sponsorship business for six months, brokerages will be affected in many ways. If the loss of business opportunities in the short term affects the IPO projects in hand, it may lead to the turnover of relevant business personnel, as well as the erosion of long-term customer relationships and the reduction of potential project reserves.
Previously, Huaxi Securities has been "named" by regulators for compliance issues many times.
On January 17, 2024, Huaxi Securities was given a written warning by the Shanghai Stock Exchange for failing to formulate a project management system for timely grasping the situation of corporate bond projects and the practice activities of business personnel, and individual projects that did not meet the project approval standards stipulated in the company's system.
In September 2023, Huaxi Securities was ordered to make corrections by the China Securities Regulatory Commission (CSRC) due to problems such as insufficient independence of internal control, senior executives in charge of the quality control department serving as sponsor representatives of IPO projects and participating in quality control approvals, and third parties hired by departmental investment banking projects to fail to strictly perform compliance reviews.
In recent years, Huaxi Securities' investment banking business income has been shrinking. In 2021, 2022, and 2023, the investment banking business income will be 457 million yuan, 218 million yuan, and 184 million yuan respectively, accounting for 8.92%, 6.47%, and 5.80% of the overall revenue, respectively.
At the end of 2023, the Securities Association of China announced the "2023 Quality Evaluation of Investment Banking Business of Securities Companies", and Huaxi Securities was rated as Class C in the three-level classification of A/B/C. The company's compliance management and risk control level still need to be further strengthened.
There are frequent changes in the executive lineup
Since 2023, Huaxi Securities has frequently changed executives in a number of business lines. Judging from the list of current executives, the new executives are involved in research, wealth, investment banking and proprietary lines.
In December 2023, the company's senior management lineup will be greatly adjusted, and Zhou Yi, the former party secretary, will replace Lu Jianxiong as chairman. As the head of the company, Zhou Yi had no experience in the securities industry before joining Huaxi Securities; He has been engaged in government management for a long time, and has served as Secretary of the Party Leadership Group and Director of the Luzhou Municipal Finance Bureau.
At the same time, the company's deputy general manager lineup almost "changed blood", Du Guowen and Xing Xiuyuan resigned, Li Dan, Xing Huaizhu, Zhang Tong, Zhu Weihua were appointed as deputy general managers, and Duan Hancong was appointed as the director of the risk control committee.
In June this year, after 20 years of service at Huaxi Securities, he held the three important positions of deputy general manager, chief operating officer and chief information officer. In April, Wan Jian was promoted to deputy general manager of the company.
However, after the intensive change of senior management, the performance of Huaxi Securities has not improved, and the new senior management team has a long way to go.
Weak earnings also continue to impact the company's share price. As of the close of trading on August 6, the share price of Huaxi Securities was 6.73 yuan / share, which has fallen below the issue price of 9.46 yuan / share (before the right to reset), down more than 12% from 7.69 yuan / share at the beginning of the year.
From the perspective of market conditions, the performance of the brokerage sector has been poor this year, and the current valuation has been in the historical bottom area. Looking ahead, "strict supervision and risk prevention" is still the main theme of supervision, and the introduction of programmatic documents such as the new Securities Law will further promote the healthy and orderly development of the capital market and the securities industry.
The non-bank team of Zhongyuan Securities believes that after the release of the new "National Nine Articles", the joint force of high-quality development of the capital market will gradually take shape, the capital market ecology is expected to continue to be optimized, and market confidence is expected to be reshaped. After experiencing norms and pains, the securities industry is expected to gradually restore profitability and enter a new round of upward cycle.
Guotai Junan Research Report believes that the uncertainty of the stock market has declined + the expectation of mergers and acquisitions is optimistic, and it is optimistic about the rebound of brokerage stocks. The new "National Nine Articles" will strengthen supervision, promote the return of the securities and fund industry to its origins, and support leading institutions to enhance their core competitiveness through mergers and acquisitions, restructuring and organizational innovation. It is expected that the consolidation of the industry is expected to accelerate, which will benefit the leading brokerages with professional capabilities and compliance operations.