GF SEC: The comprehensive self-operated business becomes the key to the performance differentiation of securities firms. It is recommended to focus on enterprises benefiting from industry supply-side reforms.

GF SEC issued a research report stating that top investment banks are increasing their efforts, leading to changes in the industry landscape. The recovery of the self-operated business by 2024 will become a key factor in performance differentiation. Regulations propose a blueprint for building top-tier investment banks and investment institutions, with opportunities for short-term trading and reevaluation of leading stock valuations brought about by mergers and acquisitions. International business is expected to continue to contribute significantly to growth. It is recommended to focus on brokerage firms benefiting from industry supply-side reforms, as well as brokerage firms with advantages in wealth management, investment banking capitalization, and international business. Key points from GF SEC include: Market recovery, active trading, bottoming out of brokerage performance with diminishing concentration According to association data, the industry's revenue in 2024 reached 451.2 billion yuan (an increase of 11% year-on-year), with a net profit of 167.3 billion yuan (an increase of 21%). Securities investment income increased by 43% year-on-year to 121.7 billion yuan (39% share), while brokerage and asset management increased by 2% and 6% respectively; investment banking and net interest income decreased by 35% and 6% respectively. The industry's leverage ratio was 3.31 times, with ROE rising to 5.34%. The concentration of profits among brokerage firms decreased, leading to continued differentiation in ROE. Self-operated business is the key to overall performance, with overall profitability on the rise Among the top brokerage firms in 2024, financial investment assets as a percentage for all except CICC showed a slight decline, with Shenwan (58%), Zhongjin (55%), and Dongfang (53%) leading. Guosen, Citic, and Zhongjin maintained advantages in self-operated income rates, while Guangfa and CMB showed impressive growth. The industry is accelerating its layout of market-making businesses, with leading institutions excelling in the areas of listing securities, options, and bond market-making. The scale and structure of fixed-income assets have become a key factor in differentiation of brokerage performance. The fixed-income investment scale of the 23 listed brokerage firms increased by 15% year-on-year to 3.06 trillion yuan, with TPL accounting for 63%. There are accounting measurement differences in fixed-income assets (AC, FVOCI, FVTPL), leading to a certain degree of "distortion" in fixed-income earnings for the period, with substantial increases in "other comprehensive income net amounts" for Galaxy Securities, Orient, and others. Transformation and differentiation in wealth management, expected to accelerate recovery Leading brokerage firms are focusing on retail customer acquisition, with Guosen and Jianguo's market share in stock-fund increasing; brokerage commission rates continue to decline; in the competition between wealth client groups and product services differentiation, only four leading institutions such as Guosen saw growth in agency sales income. The scale of brokerage asset management has rebounded but income has slightly declined, accelerating the transformation into public offering. The scale of public offering funds is steadily growing, with deeper fee rate reforms, and the scale of non-public funds and profits for leading institutions are more stable. Investment banking business reached its bottom in 2024, with prospects of recovery in 2025, underwriting sponsorships and investment banking capitalization will contribute flexible growth The scale of A-share IPO/ refinancing plummeted by 81% / 70% in 2024, with investment banking revenue declining by 35% year-on-year to 35 billion yuan, but the resilience of leading brokerage firms is evident, with continued concentration. Bond underwriting scale increased by 5% year-on-year to 14.1 trillion yuan, with the top five brokerage firms maintaining stability. In 2025, domestic IPOs and refinancing are expected to gradually return to normal, with an acceleration of A-share companies listing in Hong Kong. Increased capital investment in international business, accelerating profitability Leading brokerage firms are increasing their overseas capital investment, with CICC International achieving a total assets CAGR of 40% over the past six years. In 2024, profits from Huatai / Zhongjin / CITIC's overseas subsidiaries accounted for 43% / 47% / 17% respectively, leading the industry. There are differences in the regional layout and pace of business expansion among leading brokerage firms, with Southeast Asia and the Middle East being strategic regions for deepening internationalization efforts. Risk Warning: Economic recovery is slower than expected; significant market fluctuations; changes in industry policies, etc.