CMSC: The securities sector is expected to welcome a valuation repair market, highlighting the value of configuration.

CMSC issued a research report stating that the brokerage sector benefits from clear regulatory support, abundant liquidity, stable and expected performance, and a theme of mergers and acquisitions running from top to bottom. It is expected to usher in a period of valuation repair market, with a significant valuation repair space. The team remains optimistic about this sector. In terms of sector holdings, the proportion of public mutual fund brokerage holdings in 24Q4 is only 0.65%, much lower than the standard 4.62%; in terms of market performance, the brokerage index has retraced by 16% since November 8, 2024, with a PB of 1.42 as of February 6, placing it at the 30th percentile in the last 10 years. Compared to the aforementioned business climate and fundamentals, it presents a classic buying opportunity. Performance in 25Q1 is expected to be worry-free year-on-year. The spring market frenzy has begun, with average daily stock fund turnover in 25Q1 expected to increase by +30% year-on-year to 1.33 trillion, margin trading balance increasing by +16% year-on-year to 1.8 trillion, stock margin financing remaining stable year-on-year, and bond issuance pace increasing year-on-year. Overall, it is expected that the operating income of 43 listed brokerages will increase by +40% year-on-year to 148.2 billion, and net profit attributable to equity holders will increase by +51% year-on-year to 44.4 billion. The chairman of the China Securities Regulatory Commission (CSRC) published a signed article in "Qiushi," expressing a clear regulatory stance on consolidating the market's stable and positive trend. On February 1, CSRC Chairman Wu Qing published an article entitled "Making Efforts to Create a New Situation of High-Quality Development in the Capital Market" in "Qiushi" magazine. The article emphasizes the need to adhere to stability, accelerate reform and opening up, deepen comprehensive reform of capital market financing, promote the entry of medium and long-term funds into the market, develop index investment in a high-quality manner, and increase support for financing for the development of new productive forces. It can be said that we are currently in a period of high regulatory protection for the market. Incremental funds entering the market are driving the equity market into a positive cycle of "index appreciation, increased profitability, and inflow of funds." On January 26, six ministries jointly issued the "Implementation Plan for Promoting the Entry of Medium and Long-Term Capital into the Market," and on January 23, the State Council Information Office held a press conference to introduce efforts to promote the entry of medium and long-term capital into the market and promote the high-quality development of the capital market. According to the regulatory mentions of "guiding large state-owned insurance companies to increase their A-share investment scale and actual proportion, with 30% of new premiums to be invested in A-shares starting from 2025" and "the market value of A-shares held by public mutual funds should increase by at least 10% every year," we expect at least 1.35 trillion in incremental funds to flow into A-shares by 2025. In addition, the second batch of insurance fund long-term stock investment trials have been launched, with a scale of 52 billion. The influx of long-term funds into the market is expected to help stabilize the market and consolidate its positive trend. The second half of the merger and acquisition restart may be imminent. Currently, Guolian Minsheng's integration has kicked off and Guojun Haitong has entered the substantive trading stage, marking the end of the first half of mergers and acquisitions. However, considering the market sentiment slump and market liquidity depletion in the first three quarters of 24, the high valuations and sustainability of merger and acquisition concept stocks are to a certain extent limited. Looking ahead, large brokerage merger cases are still on the way, and the performance of related stocks and the sustainability of themes in the second half may be more promising with the support of market liquidity. Risk warning: The speed of policy implementation and progress in mergers and acquisitions may fall short of expectations, exacerbating market volatility.