China Securities Co., Ltd.: Securities industry profit growth rate returns to positive for the first time in 2024. Focus on potential merger/acquisition and technology finance event-driven targets.

China Securities Co., Ltd. released a research report stating that in 2024, the securities industry will achieve a turnaround from difficulties due to policy catalysis and market volatility, with profit growth returning to positive for the first time since 2022. The quarterly pace is attributed to reasons such as high performance in 2023 followed by a downturn, strong year-on-year base effects in the second half of the year, unexpected performance in fixed income investments in the second and third quarters, and higher trading activity in the stock market in the fourth quarter. High-elasticity offensive opportunities are focused on internet securities firms and companies with high margin trading ratios, while defensive configurations prioritize companies with strong capital strength or a high percentage of asset management/fund businesses. Lastly, the focus is on targets driven by implied mergers/acquisitions and technology finance events. The main points of China Securities Co., Ltd. are as follows: Review The development of the securities industry in 2024 presents three major characteristics: "performance recovery, industry consolidation, and accelerated internationalization": 1) Performance recovery: Proprietary and brokerage businesses are the core drivers. In the first half of 2024, securities firms faced pressure on performance, but in the second half, they experienced a significant rebound in the stock and bond markets due to policy stimuli. The third quarter was a turning point, with 22 listed securities firms seeing a year-on-year increase of 26% and 43% in operating income and net profit attributable to shareholders, respectively. Throughout the year, the main growth drivers were proprietary, brokerage, and other business income, contributing incremental growth of 36.05 billion yuan, 6.51 billion yuan, and 9.15 billion yuan. Differentiation among top securities firms intensified, while mid-sized firms achieved high-elasticity growth due to base effects. 2) Industry consolidation: Concentration at the top and regional synergy. Policies specifically aim to "cultivate top investment banks," with the main themes being the cooperation between top securities firms and the rise of local financial control platforms. Examples include the merger of Guotai Junan and Haitong Securities, and the merger of GLMS Securities. 3) Accelerated internationalization: Core focus on emerging markets, deepening business chain expansion. Policies encourage financial bi-directional opening, with top securities firms expanding globally through licenses and capital input. Some firms are strengthening their presence in Southeast Asia, with rapid growth in overseas derivative incomes, offshore Chinese bonds, and other businesses. Outlook The transformation of securities businesses toward "functional, professional, and international" is focused on breaking away from license-driven advantages through business synergy, technological empowerment, and global expansion to build long-term competitive barriers. Key aspects include: 1) Large investment banks shifting from single IPO underwriting to full-life cycle industry investment banking, from relying on IPOs for cyclical income to providing comprehensive services covering the entire lifespan of companies; 2) Large wealth management businesses transitioning from commission-driven models to buyer advisory-driven asset allocation, breaking away from traditional transaction commission dependence and establishing a buyer wealth management closed-loop through a "research/advisory" system; 3) Large institutional businesses transitioning from trading services to full value chain services of capital intermediation channels, with a focus on developing derivatives, market-making, FICC, PB, and other businesses to shape securities firms as stabilizers of smooth performance. Risk warning: Market price fluctuations, corporate profit forecasts, technological updates and iterations.