Minsheng Securities: Policy Drive Boosts Market Sentiment, Expected to Lead to Recovery in Securities Performance by 2024.

Minsheng Securities released a research report stating that the "924" new policy combination has effectively boosted market sentiment, and securities firms' revenue and net profits have quickly rebounded. It is expected that the full-year performance in 2024 will rebound from the bottom. With policy support, leading securities firms are expected to benefit from the performance resonance across multiple business lines. Meanwhile, with sound corporate governance, it is recommended to focus on CITIC SEC (600030.SH) and Huatai (601688.SH). Benefit from the supply-side reform, medium-sized securities firms are expected to expand their business layout through mergers and acquisitions, and small securities firms with distinctive light-capital businesses like brokerage and asset management are likely to achieve high performance elasticity in the market recovery trend. It is suggested to pay close attention to them. The main points of Minsheng Securities are as follows: The "924" new policy will drive the market heat to rise, and the revenue and profit growth of listed securities firms in the third quarter are expected to bottom out. In 2024, stability and financial styles will dominate, and the "924" new policy combination will effectively boost market sentiment, resulting in excess returns for the securities index. Reviewing the policy and liquidity market environment similar to that of 2014-2015, securities stocks achieved significant excess returns in 2014, while there was a differentiation in the performance of securities stocks in 2015, with only the securities stocks listed that year performing well. In the first three quarters of 2024, the revenue growth and net profit growth of listed securities firms rebounded to -2.5%/-6.5%. It is expected that the full-year performance in 2024 will rebound from the bottom. The capital market is setting a positive tone, and the domestic policy environment in 2025 is expected to remain stable. In April 2024, the State Council issued the third "nine articles" on the securities industry, and a series of supporting policies for the "1+N" infrastructure construction of the capital market were successively released throughout the year, including the "Eight regulations for the Sci-Tech Innovation Board," the "Six regulations for mergers and acquisitions," and the market value management "Guidelines." These policies are expected to generate policy synergies to promote the stable and healthy development of the capital market. Important meetings in 2024 have repeatedly mentioned the capital market, with the Political Bureau meeting on December 9 and the Central Economic Work Conference emphasizing the need to "stabilize the real estate and stock markets," indicating a positive policy tone and increased support. On the domestic policy front, the People's Bank of China guided the three interest rate cuts of the LPR (Loan Prime Rate) in 2024, and with the moderate easing of monetary policy combined with the implementation of incremental policies in 2025, economic growth is expected to rebound. The global economic growth trend in 2025 is expected to be divergent, with lingering uncertainties in the external environment. Meanwhile, domestic policy environment is expected to remain accommodative, as household consumption and credit demand are still in the process of gradual recovery. Self-operated and brokerage income rebound first, and the internal growth of brokerage and self-operated businesses drives the performance rebound. Firstly, in terms of wealth management business, the number of new accounts opened in the Shanghai stock market in October and November increased by 484% and 101% year-on-year, reflecting the increasing trading activity in the capital market. The reform of public fund fee rates is progressing smoothly, indicating that brokerage business revenue is expected to stabilize. Secondly, in terms of self-operated business, the gradual implementation of the 200 billion yuan SFISF swap is expected to increase the stock assets under brokerage self-operation; risk control indicators are expected to open up space for leading securities firms to expand their balance sheets, thereby improving industry ROA and ROE levels. Thirdly, in terms of investment banking business, with comprehensive policies supporting the merger and restructuring of listed companies, the proportion of income from mergers and restructurings is expected to increase. In a neutral scenario, Minsheng Securities predicts that the securities industry will achieve 16.4%/5.7% year-on-year revenue growth in 2024-2025, continuing to rise from 2023 to the third quarter of 2024. Merger and acquisition restructuring within the industry is progressing, and innovative businesses such as ETFs, FICC, and cross-border wealth management are expected to become new growth drivers. 1) In terms of mergers and acquisitions, in 2024, leading and small to medium-sized securities firms are strengthening resource integration through mergers and acquisitions, including methods such as stock swaps, additional share offerings, and cash acquisitions, with a variety of forms, and the mergers and acquisitions process is accelerating in the second half of the year. Internal mergers and acquisitions within the securities industry are expected to increase revenue scale in the short term and improve operational efficiency in the medium to long term. 2) In 2024, the domestic ETF market is expected to significantly expand, with the number and variety of ETF products continuously increasing, expanding revenue channels for securities firms. Regarding FICC, securities firms are focusing on bond underwriting, fixed-income self-investment, asset management, and market-making businesses to enhance performance stability. 3) In terms of overseas business, the opening-up of the capital market continues to progress, and innovative products such as cross-border wealth management connections are expected to increase the scale of securities firms' cross-border businesses. Risk warning: household wealth growth is lower than expected, increased market volatility, policy changes are not as expected, investment banking business income recovery is slower than expected, and the slowdown of merger and restructuring progress.