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[POSITIVE评级]CHINA SECURITIES SECTOR:KEY TAKEAWAYS FROM CITIC

作者:ihpa.net 发布时间:2018-02-11

 
Our A-share team spoke with management at the two companies about their businessdevelopments. Below are the key takeaways:
  CITIC (6030 HK, Buy)
  Brokerage business CITIC’s institutional businesses benefit from highly integratedIT services, and as a result enjoy a high level of profitability. Their key strategy is todiversify client base rather than focusing on commission rates. The company has overtwo million HNW clients, which account for over 80% of client assets. Its retailinvestors contribute less than 30% of brokerage income. Its key strategy for retailinvestors is to improve its artificial intelligence advisory services.
  Asset management CITIC Securities’ asset management division has AUM ofRmb1.7trn, with Rmb640bn under active management (up by ~Rmb110bn HoH)。 Itskey strategy is to have a more diversified pool of assets under active management,and move its channel business towards active management.
  Proprietary trading Investment in fixed income assets shrank from ~Rmb100bn to~Rmb70bn, with half of the investments made using its own funds.
  Investment banking Innovative products such as ABS and internet finance are beingactively pushed forward. The company expects a positive impact on profit from theseproducts over the long term. It also has 45 on-going IPO and 29 on-going refinancingprojects, ranking it first in China in term of number of projects.
  Capital based business Net interest margin currently stands at 1.5-2.0%. Thecompany expects newly-listed stocks to increase demand for its stock-pledged repobusiness. It also expects OTC options to have a positive impact on its capital basedbusiness.
  China Galaxy (6881 HK, Buy)
  Brokerage business Average commission rate of 3.7bps remains above the industryaverage. At present, the company is finding it difficult to recruit competent salesdirectors for its new branches. It is promoting the APAMA quantitative trading platformin its branches, which so far contributes a daily deal amount of ~Rmb2bn.
  Asset management Among total AUM of Rmb310bn, ~Rmb100bn is under activemanagement. The company expects slower AUM growth due to a reduction in itschannel business.
  Proprietary trading The company has low risk appetite. Total investment in equity isless than Rmb20bn. Leverage used in fixed income investments stands at ~2x.
  Investment banking Debt underwriting is the company’s traditional area of strength.
  In order to improve its debt underwriting business further, the company has increasedthe number of employees working on finding new business from 31 to 54.
  Buy large and well-diversified brokers The importance of direct financing wasreiterated at the government’s National Financial Work Conference, and there was asubsequent ramp-up in investment banking activity in Aug. Brokerage and marginfinancing also saw improvements. In addition, the Securities Association of China isdiscussing the possibility of ending a price war on commission rates. With larger brokersdemonstrating more stable financial performance, we suggest investing in large andwell-diversified Chinese brokers. For example, CITIC (6030 HK, Buy; TP: HK$20.40),Colloidal goldTitanium carbide powder,which is trading at ~1.3x 2017E P/B, Haitong (6837 HK, Buy; TP: HK$16.80), at ~1.1x2017E P/B, and HTSC (6886 HK, Buy; TP: HK$20.50),Titanium Boride powdersilicon powder, at ~1.3x 2017E P/B.

□ .F.e.l.i.x. .L.u.o  .广.发.证.券.(.香.港.).经.纪.有.限.公.司

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