Soochow: First-quarter reports of top securities firms show high growth, while smaller securities firms show significant differentiation.

Soochow issued a research report stating that the daily average trading volume of stock funds in the first quarter of 2026 exceeded 3 trillion yuan, a year-on-year increase of 79%. IPOs and secondary offerings both hit bottom and rebounded, with further concentration. The size of bond issuances remained stable with slight growth. The equity market continued to rise, while the bond market showed weaker performance. In the first quarter of 2026, the net profit attributable to the mother of 50 listed securities firms increased by 38% year-on-year, with a significant differentiation within the industry. The industry's activity remained at a high level, and it is expected that the industry's net profit will increase by 15% year-on-year in 2026. At present, the valuation of securities firms is relatively low, and considering the positive industry development policies, the bank believes that the advantages of large securities firms are still significant. Key points from Soochow: In the first quarter of 2026, the equity market fluctuated after an initial rise, and trading remained active. 1) The daily average trading volume of stock funds in the first quarter of 2026 exceeded 3 trillion yuan, a year-on-year increase of 79%. The average number of new monthly accounts opened in the Shanghai market in the first quarter of 2026 was 4.41 million, an increase of 57% compared to the first quarter of 2025. 2) As of the first quarter of 2026, margin financing balance was 2.59 trillion yuan, a year-on-year increase of 36%. The average maintenance guarantee ratio in the first quarter of 2026 was 287%, and increase of 23 percentage points compared to the first quarter of 2025, maintaining a relatively high level. 3) The scale of IPO financing continued to increase. In the first quarter of 2026, a total of 30 IPOs were issued, raising a total of 259 billion yuan, a 57% increase year-on-year. The average fundraising size per IPO in the first quarter of 2026 was 8.6 billion yuan, a 41% increase from the 6.1 billion yuan in the first quarter of 2025. 4) The scale of secondary offerings in the first quarter of 2026 continued the trend of recovery from 2025. In the first quarter of 2026, secondary offerings raised a total of 227.9 billion yuan, a year-on-year increase of 65%, with an increase of 216 billion yuan, a 63% increase year-on-year, showing significant improvement. 5) The size of bond issuances remained stable with slight growth. In the first quarter of 2026, the scale of bond issuances participated by securities firms was 3.6 trillion yuan, a year-on-year increase of 12%. Among them, corporate bond issuance saw a decrease of 67%, short-term medium-sized bond issuance decreased by 12%, financial bond issuance decreased by 11%, ABS issuance decreased by 30%, and corporate bond issuance increased by 27%. 6) The equity market fluctuated after an initial rise, while the bond market operated in a volatile manner. In the first quarter of 2026, the Shanghai and Shenzhen 300 Index fell by 3.89%, the ChiNext Index fell by 0.57%, the Shanghai Composite Index fell by 1.94%, the ChinaBond Total Return Index rose by 0.13%, and the Wind Full A Index fell by 1.15%. 7) The issuance size of equity mutual funds increased, while the issuance size of bond mutual funds decreased. In the first quarter of 2026, the issuance size of equity and mixed mutual funds was 192.5 billion shares, a year-on-year increase of 75%; among them, index funds and index-enhanced products accounted for 38% with an issuance size of 73.7 billion shares; the issuance size of bond funds decreased by 51% year-on-year to 57.9 billion shares. The overall issuance size of mutual funds in the first quarter of 2026 increased by 30% year-on-year to 324 billion shares. Net profit attributable to the mother of 50 listed securities firms increased by 38% in the first quarter of 2026, with significant differentiation. The 50 listed securities firms achieved total operating income of 163.4 billion yuan, a year-on-year increase of 31%, and total net profit attributable to the mother of 64.9 billion yuan, a year-on-year increase of 38%, and a quarter-on-quarter increase of 38%. The performance growth of the top securities firms in the first quarter was significantly higher than the average of listed securities firms. The top 10 securities firms achieved total operating income of 103.1 billion yuan, a year-on-year increase of 41%, and total net profit attributable to the mother of 43.7 billion yuan, a year-on-year increase of 47%, with a decrease in net profit of Guosen being the only exception, while the other 9 large securities firms all experienced year-on-year growth. There was significant differentiation among medium and small securities firms, with 8 securities firms showing net profit growth of over 50% and 13 securities firms experiencing a year-on-year decrease in net profit. In 2025, the average ROE of the 50 listed securities firms was 1.67%, an increase of 0.33 percentage points year-on-year, with 6 securities firms having ROE exceeding 3%. The average leverage ratio was 3.51 times, a slight increase from the 3.39 times at the end of 2025. The bank believes that the ROE in the first quarter of 2026 was mainly driven by fee-based and investment banking businesses. Fee-based businesses saw growth across the board, with proprietary trading showing significant differentiation. 1) Brokerage commissions saw a significant increase. The total brokerage income of listed securities firms in the first quarter of 2026 was 48.2 billion yuan, a year-on-year increase of 44%, which was lower than the 79% increase in the daily average trading volume of stock funds in the market. The bank believes that this was mainly due to a significant drop in transaction fees after the fund fee reform. All securities firms with disclosed data showed positive growth. 2) Margin financing balance increased, combined with a decrease in debt costs, driving a significant increase in net interest income. The total net interest income of listed securities firms in the first quarter of 2026 was 14.9 billion yuan, a year-on-year increase of 90%. At the end of the first quarter of 2026, the total margin financing balance of listed companies was 22 trillion yuan, a year-on-year increase of 35%. 3) Investment banking income increased by 31% year-on-year, mainly benefiting from significant recovery in secondary offerings due to a low base and a large increase in Hong Kong IPOs. The total investment banking income of listed securities firms in the first quarter of 2026 was 8.9 billion yuan, a year-on-year increase of 31%. 4) Asset management income grew rapidly, with stable growth in asset management scale. The total asset management income of listed securities firms in the first quarter of 2026 was 13.6 billion yuan, a year-on-year increase of 28%. Among the 32 listed securities firms with disclosed scale and comparable data, the total asset management scale in 2025 was 7.6 trillion yuan, an 8% increase year-on-year. 5) The equity market fluctuated after an initial rise, with the bond market performing better than the same period last year, and net investment income from proprietary trading of securities firms increased by 15% year-on-year, showing significant differentiation among securities firms. The total net investment income (including fair value) of listed securities firms in the first quarter of 2026 was 58.4 billion yuan, a year-on-year increase of 15%, and a quarter-on-quarter increase of 47%. There was significant differentiation in proprietary trading, with top securities firms generally achieving higher growth rates due to diversified layouts and high proportions of client demand business, while medium and small securities firms displayed higher directional positions, relying on investment styles and rebalancing rhythms. In the backdrop of increased market volatility in the first quarter, differentiation was evident. Industry activity remains at a high level, with expected 15% year-on-year growth in industry net profit in 2026. Since the beginning of the year, market trading activity has been high, with the daily average trading volume of stock funds close to 3.1 trillion yuan in the first quarter, representing a 53% increase compared to the high base of 2.05 trillion yuan in 2025. By the end of March, margin financing balance was 2.6 trillion yuan, a 3% increase from the beginning of the year. Considering the high base, the bank expects industry net profit to increase by 15% year-on-year in 2026: brokerage business income is expected to grow by 25% year-on-year, investment banking business by 28%, capital intermediary business income by 29%, asset management business by 10%, and proprietary trading to remain flat year-on-year. With relatively low valuation and expected increase in ROE, securities firms are likely to see value reevaluation. As of April 30, 2026, the CITIC SECII index had a static valuation of 1.25 times PB, which is historically in the 9th percentile and in the 8th percentile for the past decade, indicating a relatively low valuation. The bank believes that with the high-quality development of China's capital markets and the continued improvement in the capabilities and efficiency of securities firms in asset-heavy businesses, there is still room for the ROE level and valuation of securities firms in China to increase. In addition, with ongoing capital market reforms and policies encouraging high-quality securities firms to grow stronger through mergers and acquisitions, the bank believes that the advantages of large securities firms are still significant, and the industry concentration is expected to continue to increase, with large securities firms likely to enjoy a valuation premium. Key recommendations: CITIC SEC, GF SEC, Huatai, Guotai Haitong, Caitong, Industrial, East Money Information, Beijing Compass Technology Development, among others. Risk Warning: Significant market volatility, macroeconomic recovery falling short of expectations, stricter capital market regulation, and intensifying industry competition.