中國(guó)多樣化金融：以絕對(duì)回報(bào)購(gòu)買領(lǐng)先股

1、 cGlobalResearch29 January2019EquitiesChinaEquitiesChinaDiversified FinancialBuy leaders for absolute returnsGood risk-reward with immediate catalystsWhile we shift our view on the sector from neutral to cautiously optimistic, we are bullish on the leading companies. Our stress test suggests 15% ave

2、rage downsideto our 2019E book value for our covered companies, which we think is manageableand may be absorbed by a market rebound, given the worse the market, the greater the potential government stimulus. We also think the market has not priced in: 1) how continuedpolicytailwindsareimprovingthese

3、curitiesindustrysmedium-tolong-term outlook; 2) how Chinas securities industry will become more concentrated, with the leadingcompanieslikelyexpandingorganicallyandviaacquisitions;and3)anymarket reboundour strategy team forecasts a +20% return (CSI 300) for2019.An improving medium- to long-term outl

4、ook from continued policy tailwinds Given continued policy tailwinds, the medium- to long-term outlook for Chinas securities industry is improving. We forecast a 2018-21 revenue CAGR of 16.0% for theindustry(comparedtoa-23.7%CAGRin2015-18E).Thisshouldbemainlydriven bygrowthintheinvestmentbanking(IB)

5、segmentgiven:1)governmenteffortstogive companies more direct financing options through initiatives such as setting up a TechnologyInnovationBoardandrelaxingrefinancing/M&Arules;and2)theindustrys expandingassetmanagement(AM)segmentduetoincreasingactivemanagementand more trading-related business, whil

6、e we estimate derivatives can provide 9-32% incremental upside at maturity.The big to get biggerWe expect Chinas securities industry to become more concentrated, with theleading companiesexpandingnotonlyorganically,butthroughacquisitionsas:1)smallbrokers will be more negatively affected by internet

7、brokerage services and the current weak marketenvironment;2)regulationsarefavourableforhighly-ratedsecuritiescompanies with a stronger capital base; and 3) A-share institutionalisation could act as acatalyst for industry concentration based on the US marketsexperience.Our top picks are Huatai Securi

8、tiesA (HTSC) and CITIC SecuritiesA (CITIC)We like HTSC given its continued progress in the internet brokerage business, better potential monetisation of its online flows, and the potential value unlocking of US- basedsub-subsidiaryAssetMarkFinancial.WelikeCITICgivenitslargerscale,while CITICiswell-p

9、ositionedforindustrygrowthopportunitiesinIBandAMgivencontinued policytailwinds.Weassumecoverageofthestockslistedbelowinthisreport.Figure 1: China brokeragesvaluationsCraigCao HYPERLINK mailto:craig.cao craig.cao+86-213-8668821Price Rating PT(Rmb)Upside MktCapPE(x)P/BV(x)ROE (%)Ticker(Rmb)NewOldNewOl

10、d%(Rmb m)2018E2019E2018E2019E2018E2019EHuatai Sec601688.SH18.93BuyBuy23.6720.5925%156,20126.2x19.8x1.82x1.73x6.17.1CITIC600030.SH18.00BuyBuy22.3121.3824%218,10423.3x19.8x1.76x1.67x6.27.0Haitong Sec600837.SH10.03BuyBuy12.7511.6227%115,36221.4x14.9x1.23x1.16x4.66.3Changjiang Sec000783.SZ5.52BuyBuy6.89

11、6.2225%30,52368.4x25.3x1.47x1.40 x1.74.5East Money Sec300059.SZ12.89BuyNeutral14.910.9516%66,61967.9x46.6x5.05x4.67x6.69.0Industrial Sec601377.SH4.99NeutralBuy5.316.076%33,41662.0 x19.7x1.08x1.03x1.65.1Sinolink Sec600109.SH7.83NeutralBuy8.289.066%23,68120.7x18.0 x1.28x1.21x6.06.5Soochow Sec601555.SH

12、7.28SellBuy7.168.19-2%21,84055.2x26.6x1.05x1.00 x1.93.9Note: Above data as of 28 January 2019. Source: Wind, UBS-S estimates HYPERLINK / This report has been prepared by UBS Securities Co. Limited.ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ONPAGE118. UBSdoesandseekstodobusinesswithcompanie

13、scoveredinitsresearchreports.Asaresult,investorsshouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.ContentsPIVOTAL QUESTIONS4 HYPERLINK l _TOC

14、_250011 Q:Afterthemarketpullback,howmuchdownsideistherefromhere?4 HYPERLINK l _TOC_250010 Q: Will industry revenue decline further from2018Elevels?10 HYPERLINK l _TOC_250009 Q: Will industry concentration continuetoincrease?23WHATSPRICEDIN?33 HYPERLINK l _TOC_250008 Companypages35 HYPERLINK l _TOC_2

15、50007 Huatai Securities- A36 HYPERLINK l _TOC_250006 CITIC Securities- A45 HYPERLINK l _TOC_250005 Haitong Securities - A55 HYPERLINK l _TOC_250004 Changjiang Securities64 HYPERLINK l _TOC_250003 East Money Information74 HYPERLINK l _TOC_250002 IndustrialSecurities85 HYPERLINK l _TOC_250001 Sinolink

16、Securities96 HYPERLINK l _TOC_250000 SoochowSecurities107CraigCao HYPERLINK mailto:craig.cao craig.cao+86-213-8668821China Diversified Financials-AUBS-S Research THESIS MAPa guide to our thinking and whats where in this reportMOSTFAVOREDLEAST FAVOREDHTSC-A,CITIC-ASoochowSecurities-APIVOTALQUESTIONSQ

17、:Afterthemarketpullback,howmuchdownsideistherefromhere?Ourstresstestsuggests15%averagedownsidetoour2019bookvalueforecastsforthecompanies we coverwe considered the impact on investments, average daily turnover (ADT) and stock pledging,whilethesectorisalreadytradingatitslowestlevelfollowingitshistoric

18、allowin2014. HYPERLINK l _bookmark1 moreQ: Will industry revenue decline further from 2018E levels?No. We forecast Chinas securities industry will record a 16% revenue CAGR over 2018-21 (compared to a -23.7% CAGR in 2015-18E), driven by growth in the IB, AM and trading ssethis old e uted y cnted lcy

19、 tawd. n aditn, a frter eng up of the derivatives market could incrementally add 9-32% of profit at maturity without consideringthepositiveimpactonmarketliquidityandinvestmentincome. HYPERLINK l _bookmark3 Q: Will industry concentration continue to increase?Wethinksogiven:1)smallbrokerswillbemoreneg

20、ativelyaffectedbyinternetbrokerageservices and the current weak environment; 2) regulations are favourable for highly-rated securities companieswithastrongercapitalbase;and3)A-shareinstitutionalisationcouldactasacatalystfor industryconcentrationbasedontheUSmarketsexperience. HYPERLINK l _bookmark4 W

21、HATSPRICEDIN?Thesectoristradingat1.22x12mforwardP/BV.Ourreverseengineeringanalysissuggeststhatthe market has priced in a further change of +3% to -16% in 2019 for the market index based on a 1- and2-yearaverage12mforwardP/BVof1.20-1.36x.However,wethinkrecentpolicytailwindsand growthopportunitiesfort

22、heleadershavenotbeenpricedin. HYPERLINK l _bookmark7 moreUBS-SVIEWWhile we shift our view on the sector from neutral to cautiously optimistic, we are bullish on the leading companies. Our stress test suggests 15% average downside to our 2019 book value forecasts for the companies we cover, even if t

23、he market index drops to a historical bottom. We think the immediate catalysts are: 1) continued policy tailwinds improving the securities industrys medium- to long-term outlook; and 2) Chinas securities industry becoming more concentrated, with the leading companies likely to expand organically and

24、 viaacquisitions.EVIDENCERecentintroductionofsupportivepoliciescouldbeatailwindforChinassecuritiessectorBusinessesPolicy tailwindsStageMarket & LiquidityMSCI inclusionFTSE Russell index inclusion5%inclusionfactorcurrently,likelyupto20%inMay2020Inclusion factor of 25% by March 2020IBTechnologyInnovat

25、ionBoardIndiscussion,likelyin2019 Shanghai-London Stock ConnectLikely in2019ChinaDepositaryReceipts(CDRs)Likelyin2019M&AVarious new rules were rolled out recentlyAMMoreactivemanagementLoansVarious supportive measures for stock pledging business OngoingDerivatives Further relaxing the rules for index

26、futuresFurtherrelaxedon2December2018,discussionaboutfurther relaxationCSI300/500ETFoptionsrolloutIn discussionIndividualstockoptionsrolloutEarly stage of a studySource: UBS-SChinaDiversifiedFinancials-AUBS-S ResearchPIVOTALQUESTIONS HYPERLINK l _bookmark0 return Q: After the market pullback, how muc

27、h downside is there from here?UBS-S VIEWOur stress test suggests 15% average downside to our 2019 book value forecastsforthecompanieswecover,evenifthemarketindex(CSI300)drops to its historical bottom (April 2014, European debt crisis). We considered the impact on investments, impairment of stock-ple

28、dged loans and market turnover,whilethesectorisalreadytradingatabottomintermsofP/BV after the low in 2014.EVIDENCEAsofend-November2018,themarket(CSI300)wastradingat10.58xPE.It would need to drop 23% from end-November 2018 levels to reach the historical low (8.1x PE in April 2014, European debt crisi

29、s). If we assume the market wl futhr dne by 23% n 2019the wort ae htoraythere could be a 1-8% negative impact on our 2019 book value forecasts for our covered brokers.The lowest turnover velocity in the last 12 years was 188% in 2012. If we lower our estimated 2019 velocity to that level, we would d

30、erive an ADT of Rmb283bn, 33% oer than our urrent 2019 AT asumptonnegatey impacting our book value forecasts by0.3-0.7%.Ourstresstestassumesthemarketwillfurtherdeclineby23%,withaninitial loan-to-market cap ratio of 45%, an alarm threshold of 160%, a disposal threshold of 140%, and zero replenishment

31、 of collateral, with the stock pledgingloanriskequivalentto4-16%ofour2019bookvaluelossestimate.WHATS PRICED IN?After falling 28% from the January 2018 peak, the sector is trading at 1.22x 12mforwardP/BV.Ourreverseengineeringanalysissuggeststhatthemarket has priced in a further change of +3% to -16%

32、in 2019 for the market index, basedona1-and2-yearaverage12mforwardP/BVof1.20-1.36x,compared to the +20% returns forecasted by our China strategyteam.Further potential downside based on our stress testOurstresstestsuggests15%weightedaveragedownsidetoour2019bookvalue forecasts for the companies we cov

33、er. We considered: 1) the markets level asof end-November 2018, when the CSI 300 index was trading at 10.58x PE. Itwould needtodrop23%fromend-November2018levelstoreachthelowestlevelinthe past 12 years; 2) our 2019 turnover velocity forecast of 279%, suggesting 33% downside to reach the bottom of the

34、 range over the last six years of 188%; andthatconcernsoverstockpledgingareeasinggivenlocalgovernmentseffortsto set up funds to bail out brokers clients that are in trouble, which will lower credit risks and impairment for thebusiness.Our stress test assumes the worst case in historyOurstresstestsug

35、gests15%weightedaveragedownsidetoour2019bookvalue forecastsforthecompanieswecover,evenifthemarketdropstoitshistoricallow. In our stress test, we assumed the historically lowest valuation for the market index, the lowest level of turnover velocity, and impact to the balance sheet from stocks pledged

36、to quantify the downside to our 2019E bookvalue.Figure 2: Stress test indicates 15% downside to book value on average (market drops 23% to its historical low)CITICSHaitongHTSCChangjiangIndustrialSinolinkSoochowIndustry averageB/S impact from investments if market valuation to lowest level (2014)-8%-

37、7%-7%-5%-6%-1%-5%-7%B/S impact from stocks pledged if market further decrease 23%-8%-9%-7%-11%-16%-4%-5%-8%B/S impact from ADT if ADT decrease to Rmb283bn-0.7%-0.3%-0.4%-0.5%-0.3%-1.0%-0.4%-0.5%Total downside-16%-16%-13%-16%-21%-5%-10%-15%Source: UBS-S estimatesWe highlight that our stress test scen

38、ario assumes the market will drop by 23%, whichismoreconservativethanourstrategyteamsdownsidescenario. However, we ao run a enstty anais auming a 40% market deneths would negatively impact our 2019 book value estimates for companies under our coverage by 29% on average.Based on our HYPERLINK /shared

39、/d2pWYypDNrW strategy teams report, the CSI 300 index would only drop 3.7% in theirdownsidescenario.Reportextract:Inourdownsidescenariowheretrade tensionsbetweentheUSandChinaescalate,leadingto25%tariffsonallChina exportstotheUSandcorrespondingretaliationbyChina,weexpectearnings growthforCSI300at2.5%

40、(belowourbasecase5.4%growth).Assumingthe averagebetweenthetroughvaluationinearly2016andaveragevaluationsduring theeurodebtcrisis(2012-H114),wesetourdownsideindextargetat2,900for CSI300.Figure 3: Sensitivity analysisa 40% market drop would negatively impact our 2019 book value estimates by 29%CITICSH

41、aitongHTSCChangjiangIndustrialSinolinkSoochowIndustry averageB/S impact from investments if market decrease 40%-14%-12%-12%-9%-11%-1%-8%-12%B/Simpactfromstockpledgedifmarketfurtherdecrease40%-18%-22%-18%-27%-32%-9%-15%-19%B/S impact from ADT if market decrease 40%-1.4%-0.6%-0.7%-1.1%-0.5%-1.9%-0.8%-

42、1.0%Total downside-29%-31%-28%-34%-40%-11%-22%-29%Source: UBS-S estimatesImpact if A-share market valuation reaches its lowest historical levelA falling A-share market will pose risks to brokers given their equity investment positions.Asofend-November2018,themarket(CSI300)wastradingat10.58x PE. It w

43、ould need to drop by a further 23% from end-November 2018 levels to reach the historical low (8.10 x PE in April 2014). If we assume the market will furthr dne by 23%the wort eel in ts htorythre oud be a 1-8% negative impact to our 2019 book valueestimates.Figure 4: A 23% market drop would negativel

44、y impact our 2019 book value estimates by 1-8%(Rmb m)CITICSHaitongHTSCChangjiangIndustrialSinolinkSoochowEquity investment through P/L52,42228,71130,6863,35410,8845601,886Investment loss on 23% market decrease12,0576,6047,0587712,503129434Tax (25% rate)3,0141,6511,76419362632108Investment loss net o

45、f tax9,0434,9535,2935791,87797325Equity investment through OCI16,67416,22310,7203,9041,4182323,067equity investment loss through OCI (23% mkt down)3,8353,7312,466898326537052019E book value161,842126,461112,98627,21134,53120,63721,490Investment gain as % of 19E BV-8%-7%-7%-5%-6%-1%-5%Note:Equityinve

46、stmentthroughP/L=stockinvestment+40%funds+30%securitiesAMinavailableforsale(AFS);equityinvestmentthroughothercomprehensive income(OCI)=stockinvestments+40%funds+30%securitiesAMinHFT;CITIC,Haitong,HTSCandIndustrialsecdidnotdisclosedetailsoftheirheldtomaturity (HFT)accounts.Source: Company data, UBS-S

47、 estimatesAsofend-November2018,theCSI300wastradingat10.58xPEand1.28xP/BV, compared to the lows of 8.10 x and 1.18x (April 2014) in the last 12 years, repetethy woud need to drop 23% and 8% to reah the wort els in history, respectively.The lowest PE in 2008 was 12.51x (October 2008), while that in 20

48、14 was 8.10 x (April 2014)The lowest P/BV in 2008 was 1.99x (October 2008), while that in 2014 was 1.18x (April 2014).The trailing PE/PBV was calculated by Wind using its WholeMethod.Figure 5: Market PE approaching thehistoricallowFigure 6: Market P/BV approaching the historicallow60 x 50 x 40 x 30

49、x 20 x 10 x 0 x201820172016201520142013201220112010200920182017201620152014201320122011201020092008200720062005 Lowest: 8.10 x in Apr 201520182017201620152014201320122011201020092008200720062005CSI300PEMean+1stdDev-1stdDevCSI300PBMean+1std20182017201620152014201320122011201020092008200720062005Note:

50、Dataasofend-November2018.PEbasedonWindsWholeMethod. Source: WindNote: Data as of end-November 2018. P/BV based on Winds Whole Method. Source: WindImpact if turnover velocity reaches a 12-year lowThe lowest turnover velocity in the last 12 years was 188% in 2012. If we lower our estimated 2019 veloci

51、ty to that level, we would derive an ADT of Rmb283bn, 33% oer than our urrent 2019 T aumptonnegtey mpactng our book value forecasts by 0.3-0.7%.Figure 7: If ADT drops to Rmb283bn in 2019, it would negatively impact our book value forecasts by 0.3-0.7%(Rmb m)CITICHaitongHTSCChangjiangIndustrialSinoli

52、nkSoochow2019E book value (ADT Rmb420bn)161,842126,46199,16027,21134,53120,52821,4902019E book value (ADT Rmb283bn)160,688126,09698,77427,08034,44020,43821,402Downside-0.7%-0.3%-0.4%-0.5%-0.3%-0.4%-0.4%Source: Company data, UBS-S estimatesFigure 8: The sectors turnover velocity is at the bottom of t

53、he historical range (2001-9M18)900%800%700%600%500%400%300%200%100%795%519%556%519%556%395%344%283%291%322%307%342%216%256%239%254%291%188%188%2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018M9Velocity of A shareNote: Above data as of end-September 2018. Sour

54、ce: WindRisk from stocks pledged to loans if the market declines a further 23%Our stress test assumes that the market will further decline 23% from end- November 2018 levels, with an initial loan-to-market cap ratio of 45%, an alarm threshold of 160%, a disposal threshold of 140%, and zero replenish

55、ment of collateral, with the stock pledging loan risk equivalent to 4-16% of our 2019E book value loss.Current (Rmb bn)Stock pledging total balance (bn)Risk coverageratioUBS-S est loan at risk %UBS-S est loan at riskUBS-S P/L(lowend)UBS-S P/L(highend)2019E net book valueB/S impact (low end)B/S impac

56、t (high end)CITIC111163%15%16.7-6.3-12.5162-3.9%-7.7%Haitong106166%15%15.9-6.0-12.0126-4.7%-9.5%Huatai77176%13%10.0-3.8-7.5113-3.3%-6.7%Changjiang28161%14%3.9-1.4-2.927-5.3%-10.6%Industrial38154%19%7.2-2.7-5.435-7.8%-15.6%Sinolink7169%14%1.0-0.4-0.721-1.8%-3.6%Soochow12185%12%1.5-0.6-1.121-2.6%-5.1%

57、Source:UBS-Sestimatesforprofit/loss(P/L)andbalancesheet(B/S)impact.1)OurestimateofpotentialloanlossassumeszeroreplenishmentofcollateralsinceJune 2018.2)P/Limpacthasconsidereda25%businesstax.WeestimatethestockpledgingtotalbalanceforChangjiangandSinolink,andestimatetheriskcoverageratios for Industrial

58、, Sinolink and Soochow.Source: Wind, Company data, UBS-S estimatesWe believe the policies that regulators have rolled out will help reduce the credit risks that brokers are facing, thus decreasing the impairments arising from the stock pledging business.Figure 10: Stock pledging concerns eased by fa

59、vourable policiesDatePoliciesOperation modelOct-19Guo Shuqing, chairman of the China Banking and Insurance Regulatory CommissionEquity(CBIRC), called for insurers to set up special products to lower stock pledging risk; suchspecial products will not be included in the calculation of equity asset inv

60、estment byinsurance companies.Oct-22A preliminary agreement has been formed by 11 securities companies to jointly set up aEquity/bond investment; M&AseedfundofRmb21bnwiththepurposeofeasingthecurrentrisksonstockpledging.Theplan targets an ultimate scheme size of Rmb100bn, with additional money from b