China Galaxy Securities: Brokerage and Investment Drive Dual Wheels, Securities Industry Profit High Growth, Prosperous Upside

China Galaxy Securities released a research report stating that the policy goals of the country's "maintaining growth, stabilizing the stock market," and "boosting the capital market" will continue to guide the future direction of the sector. Various factors such as the continued moderately loose liquidity environment, ongoing optimization of the capital market environment, and reshaping investor confidence will collectively drive the prosperity of the securities sector, with expectations for further expansion of medium and long-term funds and improvement in the fundamentals. As of September 12, 2025, the PB valuation of the securities sector is 1.49x, ranking at the 30.1 percentile since 2010, still with a relatively high safety margin, making it a suitable time for sector allocation. The main points of China Galaxy Securities are as follows: Brokerage interim performance sees high year-on-year growth, with brokerage and proprietary trading as core drivers In H1 2025, a total of 42 A-share listed securities companies achieved operating income of 251.866 billion yuan, an increase of 11.37% year-on-year; achieving a net profit attributable to shareholders of 104.017 billion yuan, an increase of 65.08% year-on-year, reaching a new five-year high. The high growth in performance was mainly driven by brokerage and proprietary trading businesses. In terms of brokerage business, with the average daily turnover of stocks and funds in the Shanghai and Shenzhen stock exchanges reaching 1.61 trillion yuan in H1 2025, a 63.87% year-on-year increase, listed securities companies achieved brokerage income of 63.454 billion yuan, a 38.66% year-on-year increase. In terms of proprietary trading, with improvements in the equity market in H1 2025, listed securities companies achieved proprietary trading income of 112.361 billion yuan, a 50.43% year-on-year increase, contributing 44.61% to operating income, becoming a key driving force for performance. Accelerated transformation of business structure, wealth management and international business may become new growth drivers Currently, the distribution of financial products business has become an important leverage point for the transformation of wealth management. In H1 2025, listed securities companies achieved revenue of 5.568 billion yuan from the distribution of financial products, a 29.56% year-on-year increase. The business model has shifted from selling single products to asset allocation and comprehensive services, showing significant effects of wealth management transformation. In addition, with the continued deepening of China's high-level two-way opening and renminbi internationalization, the internationalization process of mainland securities firms has significantly accelerated. In H1 2025, the international business of listed securities firms showed strong growth momentum, with the top ten leading securities firms achieving a total revenue of 19.102 billion yuan from international business, a 21.15% year-on-year increase. Industry profits are concentrated in leading securities firms, while smaller securities firms are trying differentiated operating routes Market concentration continues to increase, with the Matthew effect in the industry intensifying. In H1 2025, the net profit CR5 of the industry reached 45.88%, an increase of 6.81% year-on-year; the net profit CR10 reached 67.44%, an increase of 9.04% year-on-year, showing the concentration of industry profits among leading firms. Leading securities firms expand their competitive advantages through diversified operations and establish barriers in areas such as derivatives and cross-border business; while smaller securities firms focus on regional features or niche markets, achieving breakthroughs through high-elasticity businesses. In addition, foreign securities firms are accelerating their expansion in the Chinese market. With advanced international perspectives and competitive advantages in areas such as wealth management and cross-border business, foreign securities firms are driving Chinese institutions to enhance their professional capabilities and service efficiency. Profitability enters an upward trend, and capital management continues to optimize Improvements in market conditions significantly enhance industry profitability. In H1 2025, the industry's annualized ROE was 7.07%, a 1.63 percentage point increase year-on-year; the leverage ratio remained robust at 3.29x, a decrease of 0.08 percentage points compared to the end of 2024. Funding allocation capabilities and efficiency have improved, with the proportion of equity assets in proprietary investments increasing. The average proportion of listed securities companies' equity securities and securities derivatives to net capital reached 22.12%, an increase of 3.58% year-on-year, while an increase in the allocation of high dividend assets in the OCI category enhanced income stability; margin trading balances remain stable and with an increasing trend, net interest income was 19.657 billion yuan, a 16.9% year-on-year increase. In addition, the industry has actively increased its dividend distribution, with 29 listed securities firms introducing mid-term dividend plans totaling 18.797 billion yuan, a 39.79% year-on-year increase, reflecting the industry's ongoing shift from focusing on scale expansion to prioritizing shareholder returns. Risk warning: Risks of macroeconomic performance falling below expectations; risks of capital market reforms falling short of expectations; risks of market volatility.