Haitong: Securities valuation is relatively low, expecting both alpha and beta trends to coexist in the future.

Haitong releases a research report stating that securities firms have relatively low valuations, with both future and markets expected to coexist. As of March 1, 2024, the average valuation of the securities industry is 1.3x 2024E P/B, with the Citic Securities II Index at 1.2 times P/B, indicating a lower valuation. Considering the positive industry development policies and the significant advantages of large securities firms, industry concentration is expected to continue to increase. Haitong's main points are as follows: Market activity remained high in 2023. 1) The average daily trading volume of stock funds in 2023 was 962.5 billion yuan, a 4% decrease compared to the previous year. As of the end of August 2023, there were an average of 1.16 million new investors added per month, a 5% decrease from the average of 1.23 million new investors added per month in 2022. 2) By the end of 2023, the balance of margin financing and securities lending reached 16.5 trillion yuan, a 7% increase year-on-year, with an average security ratio of 270%, indicating overall controllable risk. 3) The IPO stage has tightened, leading to a decrease in financing size. In 2023, there were a total of 313 IPOs, a 27% decrease from the previous year, raising a total of 356.5 billion yuan, a 39% decrease from the previous year, with an average fundraising size of 11.4 billion yuan per company, a 17% decrease from 2022. 4) Follow-on fundraising has declined under regulatory guidance. In 2023, funds raised through additional issuance decreased by 20% year-on-year; rights issues decreased by 76% to 15 billion yuan; convertible bonds decreased by 49% to 140.6 billion yuan; exchangeable bonds decreased by 23% to 33.3 billion yuan. 5) The size of bond issuances increased year-on-year. In 2023, the scale of bond issuances that securities firms participated in reached 13.3 trillion yuan, an increase of 28% year-on-year. Among them, corporate bonds, corporate bonds, financial bonds, and ABS increased by -45%, 25%, 21%, and 5% respectively. 6) Equity markets continued to decline, with a narrower decline compared to 2022. The Shanghai and Shenzhen 300 Index fell by 11.38% in 2023, compared to a 21.63% decline in 2022; the ChiNext Index fell by 19.41% in 2023, compared to a 29.37% decline in 2022; the Shanghai Composite Index fell by 3.7% in 2023, compared to a 15.13% decline in 2022; the Wendes A Index cumulatively fell by 5.19% in 2023, compared to an 18.66% decline in 2022; the Zhongzheng Total Full Value Index rose by 1.63% in 2023, compared to a 0.18% rise in 2022. It is expected that the net profit of listed securities companies in 2023 will increase by 9.5% year-on-year, and by 20.5% year-on-year in the fourth quarter. As of January 31, 2024, 34 securities firms have released annual reports or performance forecasts or interim reports, with 26 securities firms achieving positive growth in net profit year-on-year. Considering the performance forecasts and profit forecasts of the covered companies, it is expected that the net profit of listed securities companies in 2023 will increase by approximately 9.5% year-on-year, and by 20.5% year-on-year in the fourth quarter. The main reason for the performance growth of listed securities companies in 2023 is that the equity market performed better than in 2022 and self-operated businesses improved. The concentration of investment banking business remained high. From the perspective of completed underwriting project amounts in 2023, the concentration of listed securities firms remains high, with large comprehensive securities firms leading significantly in stock and bond underwriting volume due to their abundant resources and team advantages. The top five securities firms, CITIC SEC, China Securities Co., Ltd., CICC, Huatai, etc., collectively completed 7.35 trillion yuan, accounting for 58% of the industry, down from 60% in 202, among which in terms of IPO underwriting, securities firms with high-quality listing resources in 2023 completed more IPO underwriting quantity and amount than their peers, with the TOP5 securities firms market share reaching 56%, a 4 percentage point decrease year-on-year. Under a neutral assumption, it is expected that the industry's net profit will increase by 8% year-on-year. Under a neutral assumption, it is estimated that the industry's net profit will increase by 8% year-on-year in 2024, with brokerage business revenue expected to grow by 7%, investment banking business remaining stable, capital intermediary business revenue growing by 2%, asset management growing by 10%, and proprietary trading growing by 20%. Risk Warning: A significant decline in the capital market may bring dual pressure on performance and valuation.