CICC: Expects 12% Profit Growth for Chinese Securities Firms Next Year, Policy Environment Provides Upward Catalyst.

CICC (China International Capital Corporation) released a research report stating that the growth of the Chinese securities industry benefits from the development of the Chinese economy and the reform of the capital markets. Leading Chinese securities firms are expected to accelerate their progress towards becoming world-class investment banks during the "Thirteenth Five-Year Plan" period, better serving the modernization of China while enhancing their own business scale, professional capabilities, and profitability. The long-term investment value of the sector is expected to be further highlighted. Historically, investors have underweighted the securities sector mainly due to its homogeneous competition, large performance fluctuations, and low ROE levels. The firm believes that optimizing the industry structure, internal stability, and improving profitability will effectively drive the long-term investment value of the sector: 1) Regulatory emphasis on supporting superior firms, stronger professional requirements for emerging businesses, and accelerated industry consolidation will drive up industry concentration, while promoting both comprehensive and specialized development; 2) The business structure of leading securities firms is becoming more balanced between stocks/bonds, primary/secondary markets, institutional/retail, capital/fee-based, domestic/foreign, on-exchange/off-exchange, moving towards a more risk-neutral approach, leading to a more stable performance; 3) The industry is increasingly focused on high-quality development, with the strengthening of the risk-taking capabilities and the expected increase in long-term leverage, coupled with optimized cost structures, contributing to the improvement of long-term ROE and dividend yield. Looking ahead to investment opportunities in 2026, the firm points out that the securities sector's stock prices in 2025 may underperform the main stock indices due to changes in fund preferences and early realization of performance. However, looking towards 2026, the industry is expected to have both defensive and offensive capabilities: 1) Fundamentals are expected to remain relatively strong, with overall profit growth of 12%, but increasing differentiation between business lines and individual securities firms; 2) Policy support may provide an upward catalyst, with the normalization of IPO issuance, expansion of the product toolbox, potential easing of capital leverage, and the pace of long-term capital inflows into the market; 3) Adequate safety cushion in trading, with room for improvement in institutional holdings and valuation levels. The firm recommends focusing on three investment themes: 1) Secondary market activity transferring to the primary market, with leading investment banking and direct investment/PE businesses showing promising performance elasticity; 2) Institutional investors generating returns once again recognized, with specialty securities firms excelling in institutional sales/trading services, product distribution/configuration abilities, or having advantages in their public funds/asset management businesses; 3) Growth in international business becoming more pronounced, with comprehensive investment banks/internet securities firms/exchanges having a competitive advantage.