China Securities Co.,Ltd.: Why have securities firms recently engaged in intensive share buybacks or increased holdings?

China Securities Co.,Ltd. released a research report stating that since the second half of 2026, a number of listed securities firms have intensively launched or advanced share buybacks, with increases in holdings by major shareholders following in tandem. This round of buybacks is dominated by small and medium-sized securities firms, with the proportion of cancellation-type buybacks rising significantly and the initiating entities becoming more diversified. The direct motivation is the mismatch between high performance growth in the first half of the year and low sector valuations, prompting industrial capital to enter with its own funds to actively correct this; on the policy side, the new "Nine National Articles" encourage buybacks and cancellation, and market value management guidelines continue to provide guidance, promoting the normalization of cancellation-type buybacks. Cancellation-type buybacks permanently reduce total share capital, enhance earnings per share and return on net assets, and involve no subsequent selling pressure from treasury shares, driving securities firms' market value management to shift from short-term stabilization to long-term shareholder returns, which is long-term positive for optimizing the sector's shareholder return system. Event: Since the second half of 2026, a number of listed securities firms have intensively launched or advanced share buybacks. China Securities Co.,Ltd.'s main views are as follows: This round of securities firm buybacks and holdings increases presents the following characteristics: First, the participating entities are mainly small and medium-sized securities firms. Medium-sized institutions such as Guolian Minsheng, Changjiang, Huaan, Sinolink, Hongta, and Zhongtai have acted intensively, while leading securities firms have taken relatively limited action. The logic is that buybacks directly consume net capital, and net capital is the regulatory bottom line for core businesses such as margin financing and proprietary trading. Small and medium-sized securities firms currently have limited willingness to expand business and relatively ample net capital, giving them the conditions to implement buybacks. Second, the proportion of cancellation-type buybacks has risen significantly. In the past, buybacks were mostly for market value maintenance and equity incentives. In this round, many companies have explicitly used shares for cancellation and reduction of registered capital, and some companies have also stipulated that repurchased shares unused within three years will be cancelled according to procedures. Third, the initiating entities have become more diversified. Proposals by controlling shareholders, initiation by chairmen, and increases in holdings by major shareholders have followed in tandem. Major shareholders and management have formed a common recognition of the company's valuation, with buybacks and holdings increases forming a joint force. So why have securities firms recently engaged in intensive buybacks or holdings increases? The direct surface-level motivation is the mismatch between high performance growth and depressed valuations. First-half performance was generally expected to increase, while sector valuations remained at historical lows. Industrial capital entering with its own funds is an active correction of this mismatch; continued policy guidance, along with tools such as relending for buybacks and holdings increases, has also provided low-cost funding support. The root cause lies in the dual resonance of institutions and interests. At the policy level, the new "Nine National Articles" for the first time wrote buyback cancellation into top-level design, explicitly encouraging listed companies to repurchase shares and cancel them according to law; since 2024, policies such as the CSRC's market value management guidelines have further encouraged cancellation-type buybacks, and buyback rules have lowered thresholds and cancelled window periods, paving the way for them to move from occasional actions to normalization. At the shareholder return level, repurchasing with own funds at low valuations and cancelling is equivalent to recovering equity at low prices, which is more friendly to shareholders. In this round of securities firm buybacks, many companies have explicitly used shares for cancellation and reduction of registered capital. Its impact is mainly in the following three aspects: First, it permanently reduces total share capital, and under the premise of unchanged profit, enhances earnings per share and net assets per share, passively raising return on net assets. This is a genuine cash return that benefits all shareholders. Second, cancelled shares permanently exit circulation, so there is no selling pressure from treasury shares sold later, which helps continuously support the valuation foundation. Third, it drives the securities industry's market value management approach to shift from short-term stabilization and market support to long-term shareholder returns, aligning with the investor-oriented orientation. However, it should also be viewed rationally: the improvement in indicators from cancellation-type buybacks is based on stable profitability. If fundamentals lack support, relying solely on a limited scale of share reduction will be difficult to form a sustained valuation floor. Risk warnings Uncertainty of market price fluctuations: Capital market prices are affected by many factors, including macroeconomic fluctuations, changes in the global economic situation, and fluctuations in investor sentiment, all of which may trigger stock price changes or affect the valuations of institutions such as securities firms and insurance companies. The performance of the non-bank financial industry is greatly affected by market prices and trading volume. Uncertainty in corporate earnings forecasts: The earnings of the securities and insurance industries are affected by multiple factors. The report's forecasts for industry valuation and performance contain certain uncertainty. In addition, intensifying competition within the industry may also cause deviations in forecast results. Technological updates and iteration: The rapid development of emerging technologies requires financial institutions to continuously follow up and adapt to the pace of technological change. However, the accelerated pace of technological updates and iteration also brings high R&D investment and talent training costs, which may increase the operating costs of securities firms and insurance companies. At the same time, the outbreak of technological innovation has a certain degree of uncertainty.