Open Source Securities: Year-on-year increase in account openings in December, pay attention to brokers' performance forecasts to catalyze high growth.

Open Source Securities released a research report stating that the recent second phase bidding for SFISF swap convenience has been completed, welcoming incremental funds into the market. Senior officials have set the tone to "stabilize the real estate and stock markets," focusing on the policies to promote the entry of medium to long-term funds into the market. The current enthusiasm of individual investors entering the market remains high, and market trading activity is expected to maintain a high level. The number of new accounts opened in December decreased month-on-month but still saw a high year-on-year increase, with a focus on the increase in market trading volume and turnover rate, benefiting the improvement of the fundamentals of brokerage firms. At the same time, the improvement in traditional brokerage firms' profitability has not been fully reflected in their valuations yet, recommending undervalued top-tier brokerage firms and being optimistic about the strong retail advantages and high performance elasticity of medium and small brokerage firms. Event: The Shanghai Stock Exchange disclosed that the number of new A-share accounts in December 2024 was 1.989 million, down 26% from the previous month, up 75% year-on-year. The total number of new accounts in 2024 was 25 million, up 17% year-on-year. Dongxing disclosed performance forecast on January 7, expecting a year-on-year increase in net profit attributable to shareholders of 77% to 107% in 2024. Key points from Open Source Securities include: The number of new accounts opened in December decreased month-on-month but still saw a high year-on-year increase, focusing on the increase in market trading volume and turnover rate (1) The monthly decrease in the number of new accounts in December was expected, but it is worth noting that the year-on-year increase remains high (brokerage account opening has a strong quarterly characteristic). The number of new accounts opened is a forward-looking indicator of incremental funds entering the market. Based on the data from December, the enthusiasm of individual investors entering the market remains high, which is expected to create favorable conditions for the increase in the central trading volume in 2025. The first quarter is the peak season for brokerage account openings, and attention should be paid to the year-on-year growth rate of new accounts opened in January. (2) The average turnover rate from October 2024 to January 2025 (as of January 7, 2025) for the four months were 2.64%, 2.55%, 2.07%, and 1.60%, respectively. The peak turnover rate in this round is close to the level in 2015. Focus on the bottom level, which has a guiding effect on the subsequent turnover rate. Since the "9.24" policy combination, market confidence has been boosted, the new nine measures focus on investor protection and the coordination of investment and financing, strict control of the listing entrance, improvement of the quality of listed companies, encouragement of dividends and buybacks, and the introduction of medium to long-term funds. These measures are all positive for investors, improving the sense of acquisition. In a market environment where individual investors are more involved, the turnover rate is expected to exceed historical assumptions. The improvement in traditional brokerage firms' profitability has not been fully reflected in their valuations, with a focus on the catalyzing effect of January earnings pre-increase announcements Traditional brokerage firms are still undervalued, and the expectations for the improvement in profitability in 2024 and 2025 have not been fully reflected. The announcement of the 2024 earnings pre-increase by brokerage firms in January 2025 may act as a catalyst for the sector. (1) With the significant rise in the bond market in the fourth quarter of 2024, combined with active stock market trading, it is expected that the net profit of listed brokerage firms for the full year of 2024 will increase by over 40% year-on-year. A certain proportion of listed brokerage firms are expected to achieve a growth rate of over 50% in line with the regulatory disclosure requirements. Considering the performance of brokerage firms after 2024, their valuations are still low (expected ROE for traditional listed brokerage firms in 2024 was 7.0% vs. PB valuation of 1.14 times). (2) The first quarter of 2025 has a lower base for earnings (low investment income from large proprietary operations such as derivatives in Q1 2024), assuming a daily average stock trading volume of 1.1 trillion yuan (as of January 7, daily average stock trading volume in January was 1.21 trillion yuan), it is expected that the net profit of listed brokerage firms in Q1 2025 will increase by over 60% year-on-year. Some medium and small brokerage firms and those with strong retail advantages are expected to have a stronger year-on-year elasticity. Recommendations include undervalued top-tier brokerage firms, being optimistic about medium and small brokerage firms with strong retail advantages and high performance elasticity. The improvement in profitability of traditional brokerage firms has not been fully reflected in their valuations. The announcement of earnings pre-increases in January may serve as a catalyst for the sector. Recommendations include undervalued top-tier brokerage firms, benefiting from Guotai Junan (601211.SH), and optimistic about traditional brokerage firms with prominent advantages in internet traffic diversion and a high proportion of retail business income, benefiting from Guosen (002736.SZ) and CMSC (06099,600999.SH). Focus on medium and small brokerage firms with high performance elasticity, benefiting from Orient (03958,600958.SH) and First Capital (002797.SZ). Risk warning: Stock market volatility affects industry self-operational investment returns; the sustainability of high trading volume driven by individual investors is uncertain.