Open Source Securities: The growth logic of the securities industry has not been valued. We recommend the excess opportunities of top securities firms.

Open Source Securities released a research report stating that in the context of a stable and positive capital market, the growth logic of the securities industry has been overlooked: wealth management, overseas expansion, and the combination of investment banking and investment have brought about long-term growth drivers of over 15% CAGR. The firm emphasizes the opportunities in the brokerage sector and recommends the top brokerage firms. Low valuation, better-than-expected first-quarter reports, and improved growth prospects are the core reasons why the firm favors the top brokerage firms at the moment. The market pressures on the brokerage sector and concerns about refinancing have already been reflected in valuations, with valuations staying at historically low levels. While ROE continues to improve, the firm believes that the disconnect between fundamentals and valuations cannot persist in the long term. Overseas investment banking, asset expansion, and wealth management have become core advantages for the leading brokerage firms, with expectations for sustained growth in net profits. Key points from Open Source Securities: 1. Brokerage valuations are at the bottom range, with expectations for performance exceeding expectations to catalyze a sector rally, expecting excess returns. 2. The excess returns of the brokerage sector (relative to the Shanghai and Shenzhen 300 Index) have fallen to historically low levels, with dynamic PE valuations for top brokerage firms reaching 10 times before September 24, 2024, highlighting their value and outlook on excess returns. The better-than-expected performance in the first quarter of 2026 is expected to lead to a valuation recovery in the sector, as seen in the historical performance following better-than-expected results in the mid-year reports of 2021 and the first quarter of 2023. The releases of positive mid-year reports and the logic of wealth management led to absolute returns of 18% and excess returns of 17% relative to the Shanghai and Shenzhen 300 Index from early August to mid-September 2021. The first quarter of 2023 saw an 8% absolute return and a 7% relative return for the brokerage sector following better-than-expected results. 3. CITIC SEC and CICC reported first-quarter revenue and net profit exceeding expectations, supporting the outlook for strong performance in the top brokerage firms. 4. Wealth management, overseas expansion, and investment in innovative enterprises drive the long-term logic for the leading brokerage firms. The firm believes that in the context of a stable and positive capital market, the growth logic of the securities industry has been overlooked: wealth management, overseas expansion, and the combination of investment banking and investment bring about long-term growth drivers of over 15% CAGR. The industry is no longer just a traditional beta tool, with leading brokerage firms experiencing less profit volatility, potentially reaching a 10-year high in ROE. The firm believes that the investment focus should be on the top brokerage firms. The firm recommends focusing on the opportunities in the brokerage sector and recommends the top brokerage firms. Low valuation, better-than-expected first-quarter reports, and improved growth prospects are the core reasons why the firm favors the top brokerage firms at the moment. The market pressures on the brokerage sector and concerns about refinancing have already been reflected in valuations, with valuations staying at historically low levels. While ROE continues to improve, the firm believes that the disconnect between fundamentals and valuations cannot persist in the long term. Overseas investment banking, asset expansion, and wealth management have become core advantages for the leading brokerage firms, with expectations for sustained growth in net profits. Key catalysts for the sector include better-than-expected performance, positive policy changes, or shifts in fund styles. The firm recommends undervalued top brokerage firms and suggests focusing on three main themes: undervaluation, successful H-share financing, and high profit contributions from large wealth management for Huatai and GF SEC; leading brokerage firms such as CITIC SEC, Guotai Haitong, and CICCH; and Guosen, which benefits from high trading volumes and increasing account openings. Risk warnings include uncertainties in regulatory policies, market volatility impacts, and increased industry competition.