Shenwan Hongyuan Group: Focus on the "large asset management" business value contribution, recommend two investment themes to follow.

Shenwan Hongyuan Group issued a research report stating that the focus should be on the "large-scale asset management" business in the brokerage business portfolio. In terms of asset management subsidiaries, the bank expects that the turning point in scale under the pressure of industry channel business has already appeared. Top institutions are expected to form a positive growth cycle model. In different market environments, this will play an important role in smoothing out short-term performance fluctuations of brokerages and helping to boost the core performance. Two main investment themes are recommended: 1) Currently undervalued, with deep background in "large-scale asset management" business, benefiting from the optimization of industry competition landscape, strong comprehensive strength of top institutions; 2) "Large-scale asset management" business has outstanding characteristics, high valuation performance, and clear logic for improving ROE of characteristic brokerages. Shenwan Hongyuan Group's main points are as follows: At the current point in time, the bank believes that attention should be focused on the "large-scale asset management" business in the brokerage business portfolio (mainly asset management subsidiaries + participating/controlling public funds). Since the "924" from 2015 to now, the domestic equity market has shown strong performance, with significant gains in major stock indices, and the "large-scale asset management" business sector of brokerages has expanded in scale and profitability. With the low interest rate environment and the increase in the proportion of rights-based assets held by residents, the "large-scale asset management" business is expected to continue to expand and become the performance cornerstone of the "large and stable" business sector of brokerages, supported mainly by: 1) The business model attributes of the "large-scale asset management" business; 2) Top asset management institutions' cross-category, cross-market product layout; 3) Business growth potential; 4) As a product-side business, it naturally connects brokerages' asset side (investment banking, etc.) and the customer side (retail wealth, etc.), serving as an important synergistic hub. At the same time, the brokerage sector, which is at a low valuation, has entered the field of absolute return fund allocation, with dividend yield becoming a key factor in value assessment. However, due to the strong cyclical nature of industry operations, there are doubts and concerns in the market about the sustainability of outstanding performances. With the above-mentioned operational characteristics, "large-scale asset management" is expected to become a key business that smooths out fluctuations in brokerage performance cycles and drives the stable rise of profit core. Among the leading institutions in the industry, the bank selected six companies for comparative research: CITIC SEC (CITIC SEC asset management + Huaxia Fund), Guotai Haitong (Guotai Haitong asset management + Huaan Fund + Haifutong Fund + Fuguo Fund), Huatai (Huatai asset management + Huatai Bairui + Nanfang Fund), GF SEC (GF SEC asset management + GF Fund + Yifangda Fund), CMSC (CMSC asset management + Boshi Fund + Zhaoshang Fund), and Orient (Orient asset management + Huitianfu Fund + Changcheng Fund), focusing on the business contributions of the "large-scale asset management". From a static perspective: Huatai, GF SEC, CMSC, and Orient have distinctive characteristics in the "large-scale asset management" business, with profit contributions accounting for approximately 15%. From a static observation of profit contributions in 2025, Huatai (15.13%), GF SEC (12.36%; outstanding profit contributions from participating/controlling public funds, reaching 17.25%), CMSC (13.87%), and Orient (17.39%; outstanding asset management subsidiary contributions, reaching 7.60%) have outstanding features in "large-scale asset management" with significant contributions. From a dynamic perspective: Asset management subsidiaries are on the verge of recovery, while participating/controlling public funds continue to grow. In terms of asset management subsidiaries, the bank expects that the turning point in scale, under the pressure of industry channel business, has already appeared. Various institutions are seeking to push up fee rates through product structure optimization (such as active management transformation) and exploration of diversified businesses (such as expanding ABS/REITs investment banking businesses). The overall profitability of asset management subsidiaries is improving marginally, with room for further improvement in ROE. As for participating/controlling public funds, the core profitability is rising, with impressive ROE performance. Top institutions, with a cross-asset, cross-market product layout, are expected to form a positive growth cycle model of "highly prosperous years with rising profit levels - stable progress in turbulent market years - return to highly prosperous years" cycle. In different market environments, this will play an important role in smoothing out short-term performance fluctuations of brokerages, helping to boost the core performance. Risk warning: Changes in market environment leading to asset management growth below expectations; Regulatory policies, industry competition, and other factors leading to unexpected declines in fee rates.