CITIC SEC: The securities industry still shows resilience in earnings growth, and the dividend allocation value of leading institutions is prominent.

CITIC SEC released a research report stating that it expects the securities industry's net profit to grow 32% year-on-year in the first three quarters of 2026, with earnings resilience still intact amid market adjustments. Current A/H-share brokerage valuations are at historical lows, and the dividend allocation value of leading institutions is prominent. Investors should position around earnings growth resilience and the investment value of "new dividend" attributes. Within the year, the securities industry's fundamentals remain strongly resilient amid market adjustments, and the development of fintech finance and the release of equity financing demand are expected to support earnings growth. Over the long term, business structure optimization, leverage expansion, and improved dividend mechanisms are expected to support higher shareholder returns, and the industry's "new dividend" attribute deserves attention. CITIC SEC's main views are as follows: Earnings resilience remains amid market adjustments; the securities industry's profit is expected to maintain growth of over 30% in the first three quarters of 2026. In Q3 2026, the Shanghai Composite Index fell 6.2% during the quarter, and the capital market's average daily turnover fell 21% quarter-on-quarter, bringing multi-layered challenges to securities companies' fundamentals. However, with several core enterprises listing on the capital market, the securities industry's fundamentals are expected to remain strongly resilient with the support of fintech finance. Q3 2026 securities industry net profit is expected to be RMB 68.2 billion, down 28% quarter-on-quarter; first three quarters 2026 securities industry net profit is forecast at RMB 224.2 billion, up 32% year-on-year. Industry ROE for the first three quarters is expected to be 7.6%, and the full-year industry ROE level is expected to hit a near-decade high. The industry has dividend investment value for the first time; 2027 dividends to rival traditional dividend sectors. With fundamentals maintaining high growth, the A-share brokerage sector's PE is 11.7x, at the 0.5th percentile of the past decade; the H-share brokerage sector's PE is 6.8x, also close to its historical low range. Under a macro environment of high profit growth, valuation pressure, and a cash dividend payout ratio gradually stabilizing at 30%-40%, the industry has dividend attributes for the first time. Measured by 2026 profit and the 2025 cash dividend payout ratio, the average dividend yield of leading brokerages' A/H shares is expected to reach 4.0%/6.3%. The dividend yield of A-share leading brokerages has approached or surpassed that of traditional dividend sectors, close to banks at 3.89% and power at 3.68%, and slightly below coal at 4.37%. Expansion of capital-intensive businesses constrains the lower bound of ROA; rising leverage and payout ratios forge room for dividend growth. Over the past decade, the share of capital-intensive businesses at securities firms has gradually increased. On one hand, they diversify single-market risk through allocation to major asset classes such as equities and bonds; on the other hand, by developing market-making, derivatives, and other client-demand-driven non-directional investment and trading businesses, they have reduced the impact of market cycles and single businesses on securities firms' performance. During the 2018/2023 bear market cycles, the securities sector/leading brokerages' ROA remained above 1.1%/1.3%, constraining the sector's ROA floor. Over the past decade, the securities industry/leading brokerages' median ROA level has been around 1.6%/1.8%. Meanwhile, the securities industry and leading brokerages' leverage ratios have steadily increased, from 2.65x and 3.31x in 2016 to 3.67x and 4.95x in 2026H1, respectively, driving a gradual upward shift in the long-term ROE center. At the payout ratio level, policies continue to strengthen the shareholder return orientation, helping consolidate leading brokerages' dividend mechanisms. From 2016-2025, the sector's cash dividend payout ratio has overall remained at 30%-40%. Based on the median ROA of the past decade, leading brokerages are expected to maintain dividend yields of above 2.7%/5.0% and gradually rise. Risk factors: Decline in market turnover, tightening of equity financing, losses in investment business, capital market reforms falling short of expectations, etc.