GF Securities: Expanding the balance sheet, reshaping the brokerage landscape, internationalization becomes the second growth curve.

GF SEC released a research report stating that they are optimistic about the top securities firms with comprehensive advantages and valuation at historical lows. The current valuation of the securities sector significantly underestimates the sustainability of industry profit growth in the slow bull trend. They are optimistic about the continuous influx of incremental funds into the market, the transformation potential and growth space of wealth management, internationalization and cross-border synergistic growth momentum, profitability catalyzed by sci-tech finance, as well as innovative business and leverage space relaxation of high-quality securities firms. GF SEC's main points are as follows: Market recovery and favorable policies lead to record industry profits By 2025, 150 securities companies (parent company caliber) will achieve operating income of 541.171 billion yuan, a year-on-year increase of 19.95%; net profit of 219.439 billion yuan, a year-on-year increase of 31.2%. Among them, brokerage income grew by 42% year-on-year to 163.8 billion yuan (accounting for 30%), net interest income, investment banking, and investment income grew by 29%, 13%, and 6% year-on-year, respectively, while asset management remained stable. The industry's leverage ratio after excluding customer funds is 3.47 times, and ROE has rebounded to 6.57%. The concentration of securities assets and profits has increased, and ROE differentiation has widened. Wealth management is experiencing a resurgence and accelerating transformation By 2025, the net income from securities brokerage and margin financing interest income of 25 listed securities firms is expected to increase by 44% and 21% year-on-year, respectively. The downward trend in margin financing interest rates and the continuous decline in commission rates are driving securities firms to focus on trading value-added services and wealth management transformation. T0 strategies and AI investment advisory services have the potential to unlock potential income space. Product innovation, transition to asset allocation in distribution channels, and an increase in income in both distribution and asset management are expected. The structure of products and income distribution in distribution channels is diverging, focusing on diversified asset allocation and buyer advisory transformation, with the proportion of public offering products declining. Securities management is shifting towards active management, integrating public offering layouts, focusing on diversified asset layouts and innovative products such as FOF/ABS/REITs. The reform of public offering fees has been completed, with an increase in scale growth and continuous optimization of product structure. Transformation and differentiation in self-operated business The combined investment income (including fair value) of 25 companies increased by 34% year-on-year, with increasing differentiation in comprehensive self-operated income rates. There is a notable stability in Zhongjin's history, while Industrial Securities and Guotai Junan have prominent historical average advantages. Asset allocation is adjusting towards equity, derivatives, and diversified asset allocation, with an overall increase in equity allocations and continued high growth in OCI. Client demand business has become the pillar of transformation and development in self-operated business, with Huatai Securities and Zhongjin reporting year-on-year increases of 37% and 16% in client margin deposits. Investment banking and capitalization bottoming out, total revenue of 25 investment banks increasing by 38% year-on-year Top securities firms stand out due to their advantages in domestic and international coordinated layouts. The top three, Zhongxin, Zhongjin, and Guotai, saw year-on-year increases of 52%, 63%, and 59% respectively, with growth exceeding the industry average. The scale and concentration of domestic equity underwriting continue to rise. Market recovery and improved exit options are expected to drive participation and direct investments as new growth drivers. Calculated float profits from follow-up investments in 2026 have exceeded those from 2025, and profits from alternative and first-level subsidiaries are expected to continue to grow. Internationalization becomes the second growth curve Many securities firms are increasing investment in international subsidiaries, with accelerated expansion in the Middle East and Southeast Asia. Top securities firms' international subsidiaries are expanding rapidly, with Zhongxin, Zhongjin, and Huatai leading the competition; they are focusing on cross-border investment banking, derivatives, wealth management, and other high-end businesses, enhancing the upgrade of overseas business models and profitability. In recent years, the ROE of international subsidiaries has been significantly higher than the overall ROE, mainly due to leverage and profitability advantages. Risk warning Economic recovery falls short of expectations; significant market volatility; changes in industry policies, etc.