China Financials 18 July 2017
Guotai Junan Securities (2611 HK) Guotai Junan Securities
Target price: HKD22.00 Share price (17 Jul): HKD16.64 | Up/downside: +32.2%
Initiation: undervalued leadership position Leon Qi, CFA (852) 2532 4381 Comprehensive business coverage, ranked top-3 in all major metrics [email protected] Sound risk management and cost efficiency leading to high ROE Yan Li (852) 2773 8822 Initiating with Buy (1) call; leadership position undervalued in our view [email protected]
Investment case: We initiate coverage on Guotai Junan Securities (GTJA) Share price performance nd with a Buy (1) call. GTJA is the 2 largest securities firm in China in terms (HKD) (%) rd of attributable net profit in 2016 and 3 in terms of total assets as of end- 17.0 105 2016. It is ranked top-3 in all key industry regulatory and business metrics. 16.5 101 GTJA is currently trading at 1.0x 2017E PBR, undervalued in our view. 16.0 98 15.5 94
15.0 90 st Big is beautiful. In 2016, GTJA ranked 1 in brokerage market share and Apr-17 Jul-17 rd 3 in total investment banking underwriting amount. At end-2016, GTJA Guotai Jun (LHS) Relative to HSI (RHS) nd rd, ranked 2 and 3 respectively, in terms of the margin lending balance and stock repo lending balance. After its recent H-share IPO in April 2017, its net 12-month range 15.04-16.74 capital position should be close to CITICS’ (6030 HK, HKD16.18, Outperform Market cap (USDbn) 18.58 [2]), which has the highest net capital among China securities firms. We 3m avg daily turnover (USDm) 3.46 believe the comprehensiveness of its business coverage layout and scale Shares outstanding (m) 8,714 Major shareholder International Group (32.9%) of operation in terms of net profit and net capital are critical metrics to determining a securities firm’s long-term competitiveness. This is because Financial summary (CNY) market competition is intensifying for most traditional businesses and Year to 31 Dec 17E 18E 19E market players will have to rely more on synergies between business lines. Revenue (m) 37,567 45,035 51,705 Additionally, China’s regulators are putting increasing focus on risk Operating profit (m) 15,694 18,419 21,250 Net profit (m) 10,558 12,649 14,820 management and balance-sheet resilience. Core EPS (fully-diluted) 1.257 1.452 1.701 EPS change (%) (2.6) 15.4 17.2 Leading ROE. GTJA’s strength in high capital-return businesses (eg. IPOs Daiwa vs Cons. EPS (%) 3.8 9.0 7.3 PER (x) 11.5 9.9 8.5 and stock repo) and efficient cost management have led to high ROEs. In Dividend yield (%) 2.6 3.0 3.5 addition, from a revenue mix perspective, we expect the high ROE lending DPS 0.377 0.435 0.510 businesses and investment banking to contribute to larger proportions of PBR (x) 1.0 1.0 0.9 revenue going forward. We see such relative strength among peers as ROE (%) 9.6 10.1 11.0 sustainable and expect double-digit sustainable ROE. Source: FactSet, Daiwa forecasts
Sound risk management culture. Among the top-5 securities firms in China, GTJA is the only firm that was not downgraded by China Securities Regulatory Commission (CSRC) in its risk management rating in 2016.
Catalysts: Upcoming 1H17 results may lead the market to focus on GTJA’s attractive ROE vs. its PBR profile. Besides, we believe that as a pioneer in innovation, GTJA will be major beneficiary of the potential resumption of deregulation in the China Securities Sector.
Valuation: We use the SOTP methodology to value GTJA’s underlying operations and its contribution to the national stock market “support fund” separately. Our 12-month TP is HKD22.0, implying 1.4x 2017E PBR. GTJA currently trades at 1.0x 2017E PBR, which looks highly attractive to us.
Risks: Overpaying for potential overseas acquisitions and a prolonged delay in domestic securities industry deregulation.
See important disclosures, including any required research certifications, beginning on page 31
Guotai Junan Securities (2611 HK): 18 July 2017
Table of contents
SWOT analysis and peer comparison snapshot ...... 6 Comprehensive business layout as solid foundation for long-term growth ...... 7 Leading capital intermediary business ...... 7 Investment banking ...... 8 Investment management ...... 9 Brokerage revenue likely to remain steady ...... 10 Our long-term outlook for high ROE ...... 14 Cost efficiency should support ROE ...... 14 Likely high ROE from more profitable financing business ...... 16 Soft powers: culture of risk management, innovation and synergy from overseas platform ...... 18 Capitalising on its culture of risk management ...... 18 Innovation leader ...... 18 Competitive edge from GTJA International ...... 19 Financial forecasts ...... 20 Valuation and risks ...... 22 Fair value = PBR of 1.4x ...... 22 Valuation methodology ...... 22 Relative valuation ...... 23 Risks ...... 24 Appendix ...... 25 Company background and industry position ...... 25 Shareholding structure and major business subsidiaries ...... 26 Senior management profile ...... 27
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Guotai Junan Securities (2611 HK): 18 July 2017
How do we justify our view? Growth outlook Valuation Earnings revisions
Growth outlook GTJA: net profit and net profit growth
We expect GTJA to see a 22% net profit CAGR over 2016- (CNYm) 19E (excluding a one-off disposal gain in 2016 of 30,000 150%
CNY2.8bn, driven by a steady expansion of its IPO 25,000 100% underwriting income, lending business and cost efficiency. 20,000 50% In particular, we expect underwriting income to deliver a CAGR of 31% over 2016-19E. 15,000 0% 10,000 -50%
5,000 -100%
0 -150% 2014 2015 2016 2017E 2018E 2019E Net profit YoY (RHS)
Source: Company, Daiwa forecasts Note: brokerage, investment banking and asset management only include commission income
Valuation GTJA: PBR and share price The China securities companies under our coverage are Rolling PBR (x) Price (HKD) currently trading at a 1.1x 2017E PBR on a market-cap 1.00 17.0 weighted basis. GTJA’s valuation has been generally 0.98 16.5 below that of the sector average since its IPO in April 2017. 0.96 16.0 It is trading at a 2017E PBR of 1.0x, which is lower than 0.94 15.5 the 1.3x for GFS (1776 HK, HKD15.74, Hold [3]) and 1.1x 0.92 15.0 for CITICS (6030 HK, HKD16.08, Outperform [2]), HTS 0.90 14.5 (6837 HK, HKD12.54, Hold [3]) and Huatai (6886 HK, 7-Jul-17 2-Jun-17 9-Jun-17 14-Jul-17 5-May-17 14-Apr-17 21-Apr-17 28-Apr-17
HKD15.04, Buy [1]). 16-Jun-17 23-Jun-17 30-Jun-17 12-May-17 19-May-17 26-May-17 One-year forward rolling PBR Average PBR We expect GTJA to deliver the highest ROE among the -1SD +1SD Price (RHS) top-3 securities firms in China over 2017-19E, but its Source: Bloomberg, Daiwa current valuation is lower than that of 2 firms in our Note: Priced at 17 July 2017 coverage, ie, CITICS (6030 HK) and HTS (6837 HK).
Earnings revisions GTJA: net profit – Daiwa vs. consensus Due to the stock’s limited trading history, there are few (CNYm) consensus revisions as yet. In terms of growth, we look for 14,000 12,649 11,603 lending-related revenue to contribute 35% of total revenue 12,000 10,558 in 2017, up from 30% in 2015, driven by an expansion in 10,144 margin loans in 2016-2017 and GTJA’s market share gains 10,000 in this business. Our net profit forecasts are 4% and 9% 8,000 higher than the Bloomberg consensus for 2017 and 2018, 6,000 respectively, as we are more positive on the synergies generated from its comprehensive business coverage 4,000 layout and cost efficiency. 2017E 2018E Consensus Daiwa
Source: Company, Daiwa forecasts
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Guotai Junan Securities (2611 HK): 18 July 2017
Financial summary Key assumptions Year to 31 Dec 2012 2013 2014 2015 2016 2017E 2018E 2019E A-share ADT (CNY bn) n.a. n.a. 322 1,103 567 500 580 580 Brokerage mkt share of company (%) n.a. n.a. 5.9 5.6 5.3 6.0 6.3 6.6 Commission rate for company (%) n.a. n.a. 0.071 0.057 0.044 0.043 0.041 0.040 Margin finance bal (mkt) (CNY bn) n.a. n.a. 1,026 1,174 939 962 1,062 1,192 Stpck repo bal (mkt) (CNY bn) n.a. n.a. 365 846 799 962 1,118 1,192 Stock market annual return (%) n.a. n.a. 52.9 9.4 (12.3) 2.0 0.0 0.0 Bond market annual return (%) n.a. n.a. 10.3 8.2 1.8 2.0 4.0 4.0 Mkt annual equity financing (YoY, %) n.a. n.a. n.a. 69.0 46.4 20.0 50.0 50.0 Mkt annual debt financing (YoY, %) n.a. n.a. n.a. 37.2 23.9 10.0 10.0 10.0 Cost-to-income (%) n.a. n.a. 41.7 38.0 39.2 37.8 39.9 39.9
Profit and loss (CNYm) Year to 31 Dec 2012 2013 2014 2015 2016 2017E 2018E 2019E Gross fee and commission income n.a. n.a. 10,934 27,128 15,628 17,022 20,234 23,199 Gross interest income n.a. n.a. 6,862 15,434 11,718 13,183 16,105 18,320 Investment income n.a. n.a. 6,279 9,247 7,631 6,211 7,431 8,795 Other income n.a. n.a. 328 300 1,045 1,150 1,265 1,391 Total Revenue n.a. n.a. 24,403 52,109 36,023 37,567 45,035 51,705 Fee and commission expense (-) n.a. n.a. (1,439) (3,900) (2,368) (2,519) (2,852) (3,022) Finance costs(-) n.a. n.a. (4,761) (10,275) (7,164) (7,664) (8,664) (9,839) Business tax(-) n.a. n.a. (865) (2,272) (566) (751) (2,252) (2,585) Other Operating Expenses n.a. n.a. (7,862) (13,628) (11,194) (10,937) (12,848) (15,008) Operating profit n.a. n.a. 9,476 22,034 14,731 15,694 18,419 21,250 Profit from Assoc/JV n.a. n.a. 0 17 43 167 173 180 Other Inc/Exp/Extord. (+/-) n.a. n.a. 0 0 0 0 0 0 Pre-tax profit n.a. n.a. 9,477 22,051 14,774 15,861 18,592 21,430 Tax n.a. n.a. (2,305) (5,356) (3,421) (3,807) (4,462) (5,143) Min. int./pref. div./others n.a. n.a. (414) (995) (1,512) (1,496) (1,481) (1,467) Net profit (reported) n.a. n.a. 6,758 15,700 9,841 10,558 12,649 14,820 Net profit (adjusted) n.a. n.a. 6,758 15,700 9,841 10,558 12,649 14,820 EPS (reported)(CNY) n.a. n.a. 1.108 2.279 1.291 1.257 1.452 1.701 EPS (adjusted)(CNY) n.a. n.a. 1.108 2.279 1.291 1.257 1.452 1.701 EPS (adjusted fully-diluted)(CNY) n.a. n.a. 1.108 2.279 1.291 1.257 1.452 1.701 DPS (CNY) n.a. n.a. 0.050 0.111 0.520 0.377 0.435 0.510 Source: FactSet, Daiwa forecasts
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Guotai Junan Securities (2611 HK): 18 July 2017
Financial summary continued … Balance sheet (CNYm) As at 31 Dec 2012 2013 2014 2015 2016 2017E 2018E 2019E Cash & short-term investment n.a. n.a. 114,243 176,354 134,322 132,474 140,509 149,086 Fee and commission receivables n.a. n.a. 439 575 593 711 853 1,024 Advances to customers n.a. n.a. 76,031 82,271 68,893 73,874 84,685 98,274 Reverse repo & bank placement n.a. n.a. 32,250 39,532 63,211 84,067 96,841 112,733 Financial assets n.a. n.a. 73,467 131,116 117,380 121,879 127,640 134,619 Long-term equity investments n.a. n.a. 366 929 1,261 1,514 1,816 2,180 Other assets n.a. n.a. 22,506 23,566 26,089 28,954 34,351 40,804 Total assets n.a. n.a. 319,302 454,342 411,749 443,472 486,696 538,720 Accounts payable n.a. n.a. 100,187 147,790 112,957 105,294 110,559 116,086 Repo and bank placements n.a. n.a. 85,801 90,531 44,418 54,960 74,718 99,804 Financial liabilities n.a. n.a. 10,316 16,617 24,947 26,656 28,543 30,625 Bonds payable n.a. n.a. 48,682 59,943 87,586 87,586 87,586 87,586 Other liabilities n.a. n.a. 27,019 37,824 31,089 37,307 44,769 53,722 Total liabilities n.a. n.a. 272,004 352,706 300,997 311,804 346,174 387,824 Share capital n.a. n.a. 6,100 7,625 7,625 8,714 8,714 8,714 Reserves/R.E./others n.a. n.a. 35,940 87,699 92,339 112,167 121,021 131,395 Shareholders' equity n.a. n.a. 42,040 95,324 99,964 120,881 129,735 140,109 Minority interests n.a. n.a. 5,258 6,312 10,787 10,787 10,787 10,787 Total equity & liabilities n.a. n.a. 319,302 454,342 411,749 443,472 486,696 538,720 BVPS (CNY) n.a. n.a. 6.892 13.839 13.110 14.397 14.888 16.079
Key ratios (%) Year to 31 Dec 2012 2013 2014 2015 2016 2017E 2018E 2019E Gross fee and commission (YoY) n.a. n.a. n.a. 148.1 (42.4) 8.9 18.9 14.7 Operating profit (YoY) n.a. n.a. n.a. 132.5 (33.1) 6.5 17.4 15.4 Net profit (YoY) n.a. n.a. n.a. 132.3 (37.3) 7.3 19.8 17.2 EPS (YoY) (FD) n.a. n.a. n.a. 105.7 (43.4) (2.6) 15.4 17.2 ROAE n.a. n.a. 32.1 22.9 10.1 9.6 10.1 11.0 ROAA n.a. n.a. 4.2 4.1 2.3 2.5 2.7 2.9 Net dividend payout n.a. n.a. 4.5 4.9 40.3 30.0 30.0 30.0 Brokerage commission/Op inc n.a. n.a. 41.6 52.3 33.0 31.9 30.6 27.6 Inv banking commission/Op inc n.a. n.a. 8.9 7.9 13.9 19.2 19.7 21.7 Assest mgmt inc / Op inc n.a. n.a. 5.9 5.4 8.6 7.3 6.6 7.2 Interest inc / Op inc n.a. n.a. 10.9 12.6 16.5 19.3 21.3 21.1 Inv inc / Op inc n.a. n.a. 30.5 20.6 23.2 17.1 17.1 17.8 Leverage n.a. n.a. 675.1 447.0 371.8 336.8 346.3 357.0 Cost-to-income n.a. n.a. 61.2 57.7 59.1 58.2 59.1 58.9 Net capital ratio n.a. n.a. 77.9 88.4 89.0 67.9 58.5 48.6 Source: FactSet, Daiwa forecasts
Company profile
Guotai Junan Securities is a leading full-service investment bank in China, with a market share of over 5% in terms of brokerage trading volume in 2016. It provides a wide range of services covering brokerage, underwriting and sponsorship, proprietary trading and asset management. Its group-level net profit was the highest among all China securities firms in 2016 and the company was the third- largest securities firm in terms of total assets in China as of end-2016.
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Guotai Junan Securities (2611 HK): 18 July 2017
SWOT analysis and peer comparison snapshot
We view GTJA as a well- We conduct a SWOT analysis on GTJA below. We view GTJA as a well-rounded leading rounded leading investment bank in China and believe opportunities exist in the growing stock repurchase investment bank in (stock repo) market, due to strict regulations on net capital (which is positive for large China players in the industry), and as a result of an acceleration in A-share IPOs.
GTJA: SWOT analysis Strength Weakness
- Premium pricing compared with peers - Well- rounded business coverage may lead to market share losses - Cost efficiency - Difficulty in differentiation across - Risk management culture major business sectors
Opportunity Threat
- Decline in brokerage commission - Growing stock repurchase (stock rates repo) market - Competition erodes margins and - Strict regulations on net capital, market share which is positive for large players - Regulatory tightening and - Acceleration in A- share IPOs operational risks
Source: Company, Daiwa
GTJA: ranking of major business lines CITICS HTS GTJA GFS Huatai CGS CMS CSC Total assets 1 2 3 5 4 6 7 8 Net assets 1 2 3 5 4 7 6 8 Attributable net profits 1 3 2 4 5 8 6 7 Brokerage trading volume (1) 2 4 1 3 5 7 6 8 Margin loan and stock lending (2) 1 7 2 4 3 5 6 8 Stock repurchase (3) 1 2 3 5 4 8 7 6 Investment banking total underwriting amount (4) 2 5 3 6 7 8 4 1 ROE 8 7 2 4 6 5 3 1
Source: Companies, WIND, Daiwa Note: (1) all data for 2016;(2) GTJA including Shang Hai Securities; (3) brokerage trading volume includes stocks, funds and bonds; items (1), (2), (3) and (4) from WIND; (5) ranking among these 8 securities firms in our coverage
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Comprehensive business layout as solid foundation for long-term growth
We believe the comprehensiveness of its business coverage layout and scale of operation in terms of net profit and net capital are critical metrics to determine a securities firm’s long- term competitiveness in the industry. This is because market competition is intensifying for most traditional businesses and market players will have to rely more on synergies between business lines. In addition, China’s regulators are putting increasing focus on risk management and balance-sheet resilience.
All of GTJA’s business According to the Securities Association of China (SAC), GTJA’s business scale and profit and regulatory metrics metrics were among the top-3 in the industry over 2011-15, despite its relatively late IPO are ranked top-3 in the listing (July 2015 for its A-shares and April 2017 for its H-shares). Compared with its major industry peers, GTJA’s major business lines, including brokerage, capital intermediary business, investment banking, asset management and proprietary trading have a balanced competitive position in the industry. All of GTJA’s business rankings and regulatory metrics ranked among the top-3 in 2016.
GTJA: ranking of major business lines CITICS HTS GTJA GFS Huatai CGS CMS CSC Total assets 1 2 3 5 4 6 7 8 Net assets 1 2 3 5 4 7 6 8 Attributable net profits 1 3 2 4 5 8 6 7 Brokerage trading volume (1) 2 4 1 3 5 7 6 8 Margin loan and stock lending (2) 1 7 2 4 3 5 6 8 Stock repurchase (3) 1 2 3 5 4 8 7 6 Investment banking underwriting amount (4) 2 5 3 6 7 8 4 1 ROE 8 7 2 4 6 5 3 1
Source: Companies, WIND, Daiwa Note: all data in 2016; including Shang Hai Securities; brokerage trading volume includes stocks, funds and bonds; items (1), (2), (3) and (4) from WIND
Leading capital intermediary business Margin financing and stock lending GTJA’s balance of margin financing and stock lending in 1H17 ranked 2nd among the China securities firms under our coverage. We forecast for revenue from margin financing and stock lending to contribute around 25% of total operating income in 2017-19E.
Leading player in the We believe that the capital raised from its Hong Kong IPO in April 2017, its well- capital intermediary established infrastructure and a fair number of potential margin financing accounts will help business with an the company achieve solid earnings from margin financing and stock lending. Over 90% of increasingly competitive GTJA’s branches are able to provide margin financing and stock lending services. As at position end-2016, GTJA had 363,907 personal accounts eligible for margin financing and stock lending, 34% of which had not activated the margin financing functions.
China Securities Sector: outstanding margin loan balances China Securities Sector: margin loan market share (CNYm) 70,000 CITICS 6.1% GTJA 60,000 7.6% 50,000 Huatai 5.8% GFS 40,000 5.6% CMS 30,000 55.1% 5.5% CGS 20,000 5.4% HTS 10,000 4.7% CSC 0 4.2% CITICS GTJA Huatai GFS CMS CGS HTS CSC Others
Source: Wind, Companies, Daiwa Source: Wind, Companies, Daiwa Note: as at end-1H17 Note: as at end-1H17
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GTJA: interest income and interest rate of margin financing GTJA: interest income and interest rate of stock-pledged financing (CNYm) (CNYm) 8,000 9.0% 3,500 9% 7,000 8% 8.5% 3,000 7% 6,000 2,500 8.0% 6% 5,000 2,000 5% 4,000 7.5% 7,407 1,500 4% 3,000 7.0% 2,320 3% 4,451 1,000 2,000 1,567 2% 3,224 6.5% 1,000 500 820 1% 0 6.0% 0 0% 2014 2015 2016 2014 2015 2016 Interest income from margin financing and stock lending Interest income Weighted average interest rate (RHS) Weighted average interest rate of margin financing (RHS) Source: Company, Daiwa Source: Company, Daiwa
Investment banking GTJA has earned a GTJA is an established full-service investment banking company in China and has earned strong market a strong market reputation, especially for its debt underwriting business. In 2017, it was reputation, especially for awarded “Outstanding Corporate Bond Underwriter and Trustee” by the Shanghai Stock its debt underwriting Exchange. In 2016, it was awarded “Outstanding Investment Bank in China – Best Full- business service Investment Bank, Best Investment Bank for Refinancing and Best Investment Bank for M&A” by the Securities Times.
GTJA: underwriting amount from investment banking GTJA: revenue from investment banking (CNYbn) (CNYm) 500 452.9 5,000
400 4,000 3,452.2 321.5 3,002.1 300 3,000
200 141.0 2,000 1,488.6
100 1,000
0 0 2014 2015 2016 2014 2015 2016 Equity underwriting Debt underwriting Equity financing Debt financing Financial advisory Others Total
Source: Company, Daiwa Source: Company, Daiwa
Debt underwriting GTJA has capitalised on regulatory and market trends and has focused on the development of the corporate bond and financial bonds business. During 2014-16, the amount of corporate bonds and financial bonds underwritten by GTJA saw a CAGR of 375.8% and 218%, respectively.
According to GTJA, total amount of debt underwriting increased from CNY108bn to CNY369bn during 2014-16. In 1H17, GTJA ranked 4th in terms of debt underwriting amount among all China securities companies.
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Guotai Junan Securities (2611 HK): 18 July 2017
GTJA: debt underwriting amount China Securities Sector: debt underwriting amount (1H17) (CNYbn) (CNYbn) 450 120 400 369.4 97.1 100 350 83.3 300 80 73.7 72.4 231.2 250 60 200 46.5 45.2 150 108.2 39.4 40 100 50 20 6.4 0 2014 2015 2016 0 CITICS CMS CSC GTJA Huatai HTS GFS CGS Corporate bonds Financial bonds Enterprise bonds Others*
Source: Company, Daiwa Source: Wind, Companies, Daiwa Note: others include asset-backed securities, private placement notes by non-financial enterprises, small and medium enterprise private placement bonds, short-term financing bills, medium-term notes and exchangeable bonds
Equity underwriting GTJA has actively developed its IPO business, and has also committed to developing high- value-added services – mainly refinancing needs for its IPO clients and M&A clients. The total amount of equity financing underwritten by GTJA increased from CNY32.8bn to CNY83.5bn during 2014-16, rising at a CAGR of 59.5%. For 1H17, GTJA underwrote 6 IPOs on the main boards of both Shanghai and Shenzhen Stock Exchanges for a total fundraising amount of CNY4.7bn.
China Securities Sector: IPO league table in terms of China Securities Sector: IPO league table in terms of underwriting amount (1H17) underwriting fee (1H17) (CNYbn) (CNYm) 900 821 12 11.3 800 10 8.3 700 606 587 7.4 600 495 8 6.4 466 6.3 6.2 500 433 5.2 5.0 374 6 400 348 330 316 4.1 3.9 4 300 200 2 100
0 0
HTS
GFS
CSC
HTS
GFS
CMS
CSC
GTJA
GTJA
CITICS
CITICS
Guosen Sinolink
Guosen Sinolink
Essence
Essence
Industrial Minsheng Hongyuan Source: CSRC, Daiwa Source: CSRC, Daiwa Note: including main boards of both Shanghai and Shenzhen, SME board and ChiNext board Note: including main boards of both Shanghai and Shenzhen, SME board and ChiNext board
Investment management GTJA’s investment management business provides asset management, fund management and direct investment services to both institutions and individual clients. Revenue from investment management increased from CNY1.5bn in 2014 to CNY5.7bn in 2016, with its contribution to total operating profit rising from 5.9% in 2014 to 15.9% in 2016.
Securities-firm asset management GTJA has a large GTJA primarily conducts its asset management business through Guotai Junan Asset proportion of actively Management (GTJA AM). It charges management fees based on AUM and performance managed AUM in its fees based on investment performance. According to the company, as at end-2014, 2015 asset management and 2016, the AUM of GTJA AM ranked 2nd, 4th and 3rd in the industry, respectively. business
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Guotai Junan Securities (2611 HK): 18 July 2017
GTJA: asset management AUM and revenue 2014 2015 2016 AUM Revenue AUM Revenue AUM Revenue Collective asset management (CAM) 44,771.4 309.5 105,161.4 711.1 84,023.9 990.0 Targeted asset management (TAM) 468,875.5 508.5 494,419.9 773.5 739,203.7 998.2 Specialized asset management (SAM) 319.0 0.2 9,003.1 3.2 23,198.2 13.0 Total 513,965.9 818.2 608,584.4 1,487.8 846,425.8 2,001.2
Source: Company, Daiwa
GTJA AM places an emphasis on developing active-management capability. According to the company, it led the industry in terms of ratio of active-managed products out of total AUM during 2014-2016.
GTJA: returns of actively managed products GTJA: active- and non-active managed AUM (2016)
60%
40% Active managed AUM, 36.10% 20%
0% Non-active managed AUM, 63.9% (20%) 2014 2015 2016 Returns of active-managed AUM Returns of active-managed AUM (on equity) Returns of CSI 300 Index Source: Company, Daiwa Source: Company, Daiwa Note: AUM of GTJA AM Note: AUM of GTJA AM
GTJA AM places As at end-2016, GTJA had 122 collective asset management (CAM) schemes. Around emphasis on developing 85% of the total CAM scheme AUM has been invested in fixed-income products with 5.1% active-management in equity products. Major products of GTJA’s CAM schemes include Jundeli Series (君得利 capability 系列) and Cash Keeper (现金管家).
GTJA has also entered into targeted asset management (TAM) contracts with 356 clients. The minimum subscription requirement of its TAM schemes is CNY1m. The management fee commission for its top-5 TAM schemes ranged from 0.03% to 0.2% during 2014-2016.
Fund management GTJA conducts its fund management business through GTJA Allianz Funds, a joint venture with Allianz. In order to optimise the business structure, GTJA sold its entire equity interest in GTJA Allianz Funds in 1H17, and is in the process of acquiring a 20% equity interest in HuaAn Funds, which has a total AUM of CNY314bn, including public funds AUM of CNY163bn as at end-2016.
Direct investment GTJA conducts its direct investment business through Guotai Junan Innovation Investment. Income from its direct investment business increased from CNY212.5m in 2015 to CNY3,210m in 2016, primarily due to the exit of its 66.7% equity interest in Haiji Securities in February 2016 which realised a gain of CNY2,835m.
Brokerage revenue likely to remain steady Regaining market share after H-share IPO GTJA’s brokerage market share (including Shanghai Securities, which is 51% owned by GTJA) has ranged between 4.8-5.9% since 2010. In 2015 and 2016, its market share declined by 30bp each year primarily due to fierce competition from low-cost brokers and possibly due to its relatively weak net capital position. We understand that GTJA does not try to actively compete on commission rates.
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Following the completion of its Hong Kong IPO in April 2017, its 1H17 brokerage market share rebounded strongly to 6.27%.
GTJA: stocks and funds brokerage market share (1H17)
7% 6.27% 5.90% 5.60% 6% 5.30% 5% 4.16% 4.11% 4.04% 4.02% 4%
3%
2%
1%
0% 2010 2011 2012 2013 2014 2015 2016 1H17
Source: Wind, Company, Daiwa Note: 2010-2013 and 1H17 from Wind; 2014-2016 from Company
In the retail brokerage business, GTJA categorises its customers into 3 types based on account balances: a) Ordinary Accounts with a balance of less than CNY0.5m, b) Affluent Accounts with a balance of between CNY0.5m and CNY5.0m, and c) High-net-worth Account: with a balance of above CNY5.0m. In 2016, GTJA had 9.1m retail accounts, of which 82.6% are active accounts and 65% (of the 9.1m) are over 3 years old.
GTJA: number of personal client accounts GTJA: balance of personal client accounts (In thousands) 2014 2015 2016 (CNYbn) Ordinary accounts 4,564 96.0% 6,496 96.5% 8,838 97.0% 2,000 1,867 Affluent accounts 162 3.4% 193 2.9% 255 2.8% 1,635 High-net-worth accounts 30 0.6% 40 0.6% 22 0.2% 1,600 1,410 Total 4,756 100.0% 6,729 100.0% 9,114 100.0%
1,200
800
400
0 2014 2015 2016 Ordinary accounts Affluent accounts High-net-worth accounts Source: Company, Daiwa Source: Company, Daiwa
We see GTJA moving actively to establish its edge in retail brokerage by developing both its online and offline channels. GTJA has migrated its standardised business onto its online platform over 2014-2016 and provides comprehensive financial service through both offline and online platforms. GTJA has established 3 internet financial platforms, including Jun Hong Financial Mall (君弘金融商城), mobile app Guotai Junan Jun Hong (国泰君安君弘) and the WeChat public account service platform. In 2016, 98.7% of GTJA’s new brokerage clients opened accounts through online channels, including computers and mobiles, compared with 41.9% in 2014 and 89.3% in 2015.
GTJA’s retail brokerage In December 2016, Guotai Junan Jun Hong (国泰君安君弘) ranked 5th among all app is the second most securities-related apps in China and 2nd among broker-affiliated apps in terms of active active app among all penetration (“active penetration” meaning the proportion of iPhone users who opened the securities-related apps app directly in a one-month period out of all iPhone users who had downloaded the app from securities firms [mainly in China])
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Guotai Junan Securities (2611 HK): 18 July 2017
Securities-related apps in China: Active penetration (top 10) 0 1 2 3 4 5 6
Flush (同花顺) 5.8 (%) Eastmoney (东方财富网) 1.94 Great Wisdom (大智慧) 1.88 Zhang Le Fortune Path (涨乐财富通)* 1.17 Guotai Junan Jun Hong (国泰君安君弘) 0.79 E-HaitongCai (海通e海通财) 0.77 Zhiyuan Yi Hu Tong (招商智远一户通)* 0.73 Goldsun handset soft (金太阳)* 0.72 Ping An Securities (平安证券) 0.66 Zixuangu (自选股) 0.62
Source: App Annie, Laohucaijing, Daiwa Note: (1) Dec 2016 data; (2) Zhang Le Fortune Path (涨乐财富通) is from Huatai; Zhiyuan Yi Hu Tong (招商智远一户通) is from CMS; Goldsun handset soft (金太阳) is from Guosen; Flush (同花顺), Eastmoney (东方财富网), Great Wisdom (大智慧) and Zixuangu (自选股) are not broker-affiliated
GTJA: internet financial platforms - Jun Hong Financial Mall GTJA: internet financial platforms - mobile app
Source: Company, Daiwa Source: Company, Daiwa Note: snapshots of GTJA mobile app
GTJA: internet financial platforms - WeChat public account GTJA: breakdown of trading volume of stocks and funds brokerage business (2016)
1.3%
26.4% Computers Mobile devices Branch onsite 72.2%
Source: Company, Daiwa Source: Company, Daiwa Note: snapshots of GTJA WeChat Accounts
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Guotai Junan Securities (2611 HK): 18 July 2017
Above-industry-average commission rate GTJA charges an above- Despite the sector-wide headwinds on brokerage commission rates, GTJA has managed to average brokerage charge an above-average brokerage commission rate. In 2016, its average net brokerage commission rate commission rate of stocks and funds was 0.6bp higher than the sector average of 3.73bp.
GTJA: average net commission rate vs. sector average GTJA: average net commission rate of stocks and funds brokerage (bp) (bp) 7.5 8 7.0 7 6.5 6 6.0 5 5.5 4 5.0 3 4.5 4.0 2 3.5 1 3.0 0 2014 2015 2016 2014 2015 2016 Commission rate of sector Commission rate of GTJA Stock brokerage commission rate Fund brokerage commission rate
Source: SAC, Company, Daiwa Source: Company, Daiwa Note: average net commission rate of stocks and funds; GTJA’s is trading volume weighted average of both its stocks brokerage commission rate and funds brokerage commission rate
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Guotai Junan Securities (2611 HK): 18 July 2017
Our long-term outlook for high ROE Cost efficiency should support ROE Low financing costs We believe GTJA’s relatively low funding costs are key to being profitable in the lending business. The cost of funds for bonds issued by GTJA during 2016 ranged from 2.9-3.6%. Second-lowest financing In terms of the average interest cost for all interest-bearing liabilities, GTJA’s stood at 4.5% cost likely to help ROE for 2016, which was the second lowest among major listed securities firms (excluding accounts payable to customers).
Major China securities firms: cost of funds comparison 9% 8.2% 8%
7% 6.4% 6.6% 6.6% 6.0% 5.9% 5.8% 6% 5.3% 4.7% 4.8% 5% 4.5% 3.9% 4%
3%
2% CITICS HTS GTJA CMS CGS Average
2015 2016 Source: Company, Daiwa forecasts Note: average cost of funds excluding account payables
Chinese securities firms are seeing rising funding costs since 2014 against the backdrop of a muted sector outlook since 2H15 and overall tightening of liquidity in the economy since 2H16. Amid such headwinds, we believe GTJA has gained financial cost efficiency, mainly due to its large operating scale and strong shareholder support. Although its financial cost to revenue ratio was historically higher than peers’ (in 2014), GTJA has managed to rein in its growth after its A-share IPO in mid-2015.
China Securities Sector: financial cost to revenue ratio 35%
30%
25%
20%
15%
10%
5%
0% CITICS HTS GTJA GFS Huatai CGS CMS CSC 2014 2015 2016
Source: Companies, Daiwa Note: interest expense divided by total revenue
We compare the coupon rates of GTJA’s corporate bonds and subordinated bonds with those of its peers in 2015-2016. Under similar bond issuance terms and tenor, GTJA can issue bonds at a slightly cheaper price than most other Chinese securities firms, thanks to its high bond credit rating.
Given its good financial performance, credit risk management and lower operating risk, we believe GTJA has the capability to maintain its high bond credit rating, AAA rating from Shanghai Brilliance Credit Rating and Investors Service (a recognised domestic rating agency for domestic bond issuance for most of its bond issuance), BBB from S&P, and
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Guotai Junan Securities (2611 HK): 18 July 2017
Baa1from Moody’s. Historically, GTJA was the only firm among the top-5 China securities companies to have attained a regulatory rating of “Class A Grade AA” from the CSRC for 9 consecutive years from 2008-16. “Class A Grade AA” is the highest rating attained by any securities company to date.
China Securities Sector: cost of debt Date Issuer Type Tenor Amount (CNYbn) Coupon rate (%) On shore/Off shore 15-Mar-2016 CGS Corporate bond 5 years 0.3* 4.30 On shore 12-Apr-2016 GTJA Corporate bond 5 years 5.0 2.97 On shore 12-Apr-2016 GTJA Corporate bond 7 years 1.0 3.25 On shore 9-May-2016 GFS Subordinated bond 3 years 4.3 3.30 On shore 18-May-2016 HTS Corporate bond 4 years 15.0 3.60 On shore 18-May-2016 HTS Corporate bond 5 years 5.0 3.80 On shore 1-Jun-2016 CGS Corporate bond 3 years 4.9* 3.10 On shore 1-Jun-2016 CGS Corporate bond 5 years 0.6* 3.35 On shore 13-Jun-2016 GFS Subordinated bond 3 years 5.0 3.50 On shore 21-Jun-2016 GFS Subordinated bond 5 years 5.0 3.70 On shore 18-Jul-2016 Huatai Subordinated bond 4 years 0.6 3.94 On shore 19-Jul-2016 GTJA Subordinated bond 4 years 5.0 3.30 On shore 19-Jul-2016 GFS Subordinated bond 4 years 5.0 3.35 On shore 12-Aug-2016 GTJA Corporate bond 5 years 5.0 2.90 On shore 12-Aug-2016 GTJA Corporate bond 5 years 3.0 3.14 On shore 17-Aug-2016 GFS Subordinated bond 2 years 5.0 3.03 On shore 23-Aug-2016 CGS Corporate bond 3 years 1.5* 2.89 On shore 23-Aug-2016 CGS Corporate bond 5 years 1.0* 3.14 On shore 29-Aug-2016 GFS Subordinated bond 3 years 4.0 3.30 On shore 14-Sep-2016 GFS Subordinated bond 3 years 4.0 3.50 On shore 19-Sep-2016 CGS Corporate bond 3 years 3.5* 3.18 On shore 21-Sep-2016 GTJA Corporate bond 5 years 3.0 2.94 On shore 14-Oct-2016 Huatai Subordinated bond 5 years 5.0 3.30 On shore 21-Oct-2016 Huatai Subordinated bond 3 years 3.0 3.12 On shore 21-Oct-2016 GTJA Subordinated bond 4 years 4.0 3.14 On shore 24-Oct-2016 CGS Corporate bond 2 years 4.0* 3.15 On shore 11-Nov-2016 GTJA Subordinated bond 3 years 3.0 3.34 On shore 11-Nov-2016 GTJA Subordinated bond 5 years 3.0 3.55 On shore 16-Nov-2016 CITICS Corporate bond 3 years 12.5 3.26 On shore 16-Nov-2016 CITICS Corporate bond 5 years 2.5 3.38 On shore 17-Nov-2016 HTS Subordinated bond 3 years 2.0 3.40 On shore 18-Nov-2016 GFS Corporate bond 3 years 3.0 3.45 On shore 6-Dec-2016 Huatai Corporate bond 3 years 3.5 3.57 On shore 6-Dec-2016 Huatai Corporate bond 5 years 2.5 3.78 On shore 14-Dec-2016 Huatai Corporate bond 3 years 5.0 3.79 On shore 14-Dec-2016 Huatai Corporate bond 5 years 3.0 3.97 On shore
Source: Companies, Daiwa Note: * carrying amount at end-2016; including most bonds issued by major Chinese securities firms in 2016, but not all.
Operating cost efficiency Operating cost ratios In 2016, GTJA delivered a cost-to-income ratio (excluding financial cost) of 39.2%, much also at the low end of the lower than the 54.5% for CITICS and 45.2% for HTS. If we exclude its one-off gain of industry CNY2.8bn from the disposal of Haiji Securities, its cost-to-income ratio falls to 42.6%, still below that for CITICS and HTS.
China Securities Sector: cost to income ratio (excluding financial cost) 60%
55%
50%
45%
40%
35%
30% CITICS HTS GTJA GFS Huatai CGS CMS CSC 2014 2015 2016
Source: Companies, Daiwa
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Guotai Junan Securities (2611 HK): 18 July 2017
Likely high ROE from more profitable financing business Capital intermediary businesses Besides cost efficiency, we believe GTJA’s sustained higher-than-peers’ ROE will be driven by the strength its capital intermediary businesses and further development in these businesses. We estimate that the ROE on its capital intermediary businesses could be as high as 12% over our forecast horizon.
GTJA also has the potential to grow its top line by fully utilising the CNY16bn from its Hong Kong IPO in April 2017. Around 30% of the proceeds, or HKD4.8bn, will be used for its capital intermediary and other institutional finance business, according to its IPO prospectus. We expect gross interest income from its capital intermediary businesses to contribute 36% of GTJA’s revenue by 2019 compared with 30% in 2015.
12% sustainable ROE from capital intermediary businesses. We view the capital Focus on capital intermediary businesses, including: 1) margin finance and stock lending for retail clients, intermediary and IPO and 2) stock-pledged financing and repurchase, as profitable for Chinese securities firms. business leading to Currently the prevailing annualised interest rate is 8.35% on margin lending and 6-7%for higher ROE stock repo. GTJA’s average funding cost stood at 4.5% in 2016 and is likely to be lower in 2017 given its H-share IPO and resilient regulatory risk rating. Assuming a 4.0-4.5% long- term financing cost for GTJA, and 3.7x leverage (excluding customer deposits), the capital intermediary business should deliver c.12% ROE for 2017-2019, on our estimates.
China Securities Sector: outstanding margin loan balances China Securities Sector: margin loan market share (CNYm) CITICS, 7.0% 70,000 GTJA, 6.0% 60,000 Huatai , 5.6% 50,000 GFS, 5.6% 40,000
30,000 Others, 56.1% CMS, 5.5%
20,000 CGS, 5.3%
10,000 HTS, 4.7%
0 CSC, 4.2% CITICS GTJA Huatai GFS CMS CGS HTS CSC Source: Wind, Companies, Daiwa Source: Wind, Companies, Daiwa Note: as at end-1H17 Note: as at end-1H17
GTJA: interest income and interest rate of margin financing GTJA: interest income and interest rate of stock-pledged financing (CNYm) (CNYm) 8,000 9.0% 3,500 9% 7,000 8% 8.5% 3,000 6,000 7% 8.0% 2,500 5,000 6% 2,000 5% 4,000 7,407 7.5% 4% 3,000 1,500 7.0% 2,320 3% 2,000 4,451 1,000 3,224 6.5% 1,567 2% 1,000 500 820 1% 0 6.0% 0 0% 2014 2015 2016 2014 2015 2016 Interest income from margin financing and stock lending Interest income Weighted average interest rate (RHS) Weighted average interest rate of margin financing (RHS) Source: Company, Daiwa Source: Company, Daiwa
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Investment banking business From an ROA and ROE perspective, if we look at the profitability of different business lines of securities firms, the investment banking business is much more profitable compared to all other business lines. This is because of the small amount of capital required in investment banking business. For GTJA, during 2014-16, its investment banking segment saw ROAs of 66-148%, compared with its overall reported ROA of 1.9-4.1% in the same period.
GTJA: ROA of major business lines 0% 20% 40% 60% 80% 100% 120% 140% 160%
Investment banking
Institutional investor service
Personal finance
Investment management
International business
2014 2015 2016 Source: Company, Daiwa Note: ROAs are based on average total assets; to calculate ROA in 2014, we assume segment total assets in 2013 equal to 90% of these in 2014
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Guotai Junan Securities (2611 HK): 18 July 2017
Soft powers: culture of risk management, innovation and synergy from overseas platform Capitalising on its culture of risk management We see excellence in risk management as one of the core competencies for the long-term resilience and competitiveness of securities companies. To this end, GTJA has demonstrated a well-developed risk management culture and solid track record.
1) GTJA has established a comprehensive risk management and internal control system, which constitutes a four-tier risk management. We see this fully-functional infrastructure as necessary to cope with future changes and uncertainties from global and domestic markets.
Risk management 2) GTJA’s compliance and risk management team accounted for 5.9% of its total culture reflected in employees and is embedded in each business segment and division. This team is led by stable regulatory rating the Board and has already helped GTJA attain excellent regulatory ratings. Such a top- down management structure would effectively help GTJA to implement its long-term strategy, in our view.
3) GTJA is the only company among the top-5 securities companies in China to have attained a regulatory rating of “Class A Grade AA” from the CSRC for 9 consecutive years from 2008-16. Further, we expect GTJA to attain high ratings from rating agencies, which would allow GTJA to issue bonds at low interest rates, with a lower financing cost going forward.
Innovation leader Leader in business Viewed by the market as a leading Chinese securities firm, GTJA was a front-runner in innovation terms of delivering comprehensive value-added service for both retail clients and institutional clients. Below are examples of business innovation:
GTJA: milestone innovation events Passed the review by Securities Association of China (SAC) and became one 2005 of the pilot securities firms conducting innovative business, including margin finance, stock repo, asset management and asset securitisation
Guotai Junan International (1788 HK) became the first subsidiary of a Chinese 2010 securities firm in Hong Kong to undergo an initial public offering and listing on the Hong Kong Stock Exchange Became the first company in the industry to join the payment system of the 2013 PBOC and started to implement innovative plans for integrated wealth management services Became the first company in the industry to obtain the qualification for sale and 2014 purchase of foreign exchange, and the China Interbank FX Market membership and derivatives membership qualification Among the first batch of securities companies admitted into the 2015 independent accounting and auditing unit of the PBOC. Also commenced free trade account business in Shanghai Pilot Free Trade Zone
Source: Company, Daiwa
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Guotai Junan Securities (2611 HK): 18 July 2017
GTJA: segment innovation events
Institutional investor Personal finance Investment International Investment banking service business management business
- The first domestic - The first securities - In the first batch of - In the first batch of - In the first batch of enterprise firm to establish a securities firms to securities firms to securities firms to listing through share research institute and obtain margin establish asset mana- provide an online conversion and to set up a comprehe- finance and securities gement subsidiary international trading merger by absorption nsive prime brokerage lending pilot qualifica - and to obtain the platform The first warrant service system tion and futures bond- pledged and - The first to launch issuance - The first to obtain and options Broker- repurchase qualifica - RQFII products - The first credit Shanghai Gold Exch - age qualification tion - First to act as a asset securitisation ange International - First to obtain - The first to launch sponsor for the H- - The first corporate Class A membership payment license hedge fund product, share listing of an A asset securitisation - The only securities - Began to set up statistical arbitrage share- listed company - The first commercial company to obtain the comprehensive product and the first - The sole sponsor for bank hybrid capital foreign exchange wealth management broker- classified the first conversion of bond issuance settlement and sales business as early as hedging product B shares into H - The first preferred business license 2011 shares and listing share issuance
Source: Company, Daiwa
Competitive edge from GTJA International
Established subsidiary GTJA has built its international business platform around GTJA international (1788 HK, not in Hong Kong should rated), which listed in Hong Kong in 2010 and has its expanded business presence to the help generate more US and Singapore. In 2016, GTJA International’s net profit was HKD969.1m, contributing cross-border synergies around 8.5% of net profit to GTJA.
We expect GTJA International to reinforce GTJA’s competitive advantage in terms of:
1) Global presence. In 2016, GTJA International incorporated several subsidiaries in Singapore and commenced distribution of research reports in Singapore, aiming to leverage on Singapore’s position as a global funds hub to recruit global clients and attract more fund inflows. We expect GTJA International, as the major overseas platform for GTJA, to witness more growth opportunities coming from:
a) the rising financing demand from mainland companies to raise more capital for their own development or for cross-border mergers and acquisitions, b) the growing demand from China for overseas asset allocation, and c) China’s One Belt One Road strategy, which would provide opportunities to enter the Southeast Asian market. GTJA International has launched a number of private funds including the “Guotai Junan One Belt One Road Asia Fund” to capture the growth potential of enterprises that would benefit from China’s One Belt One Road policy.
2) flows from cross-border business. Current channels for cross-border business include the Qualified Foreign Institutional Investor (QFII) scheme, RMB Qualified Foreign Institutional Investor (RQFII) scheme, Qualified Domestic Institutional Investor (QDII) scheme, the Shanghai-Hong Kong Connect and the Shenzhen-Hong Kong Connection. We expect GTJA to manage overseas investment for its QDII clients mainly through GTJA International, keeping clients and income within the GTJA group. GTJA could also pitch to QFII investors and manage RQFII portfolios through GTJA International.
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Guotai Junan Securities (2611 HK): 18 July 2017
Financial forecasts
Sector-level assumptions We assume a neutral We summarise our sector-level assumptions for the key metrics for the China Securities capital market in China Sector in the following table. for 2018-19E
China Securities Sector: assumptions for key metrics 2014 2015 2016 2017E 2018E 2019E Average daily turnover of A-share (ADT, CNYbn) 322 1,103 567 500 580 580 Margin finance balance (market, CNYbn) 1,026 1,174 939 962 1,062 1,192 Stock repo balance (market, CNYbn) 365 846 799 962 1,118 1,192 Stock market annual return (%) 52.9% 9.4% -12.3% 2.0% 0.0% 0.0% Bond market annual return (%) 10.3% 8.2% 1.8% 2.0% 4.0% 4.0% Market annual equity financing (CNYbn) 549 928 1,359 1,631 2,446 3,669 Market annual debt financing (CNYbn) 7,887 10,822 13,410 14,751 16,226 17,849
Source: Daiwa estimates
For market average daily turnover (ADT), with turnover velocity now back at its past-5- year average level after the turmoil of 2015, at around 270% on total market cap or 340% on free float on an annual basis, we do not see further downside for market ADT and expect a mild rebound as: 1) we expect the past-5-year average velocity to rise moderately in 2017-19E given that margin trading, which has a much higher velocity than traditional trading, started to make a significant contribution to total trading only since late-2014, and 2) we expect overall market cap to gradually increase given the ongoing IPO activity and equity financing in the market.
For the margin finance balance of the whole A-share market, we assume a 1.8% penetration rate (defined as the margin lending balance as a percentage of total market cap) at end-2017, 1.9% at end-2018 and 2.0% at end-2019. We believe 2.0% is the long- term sustainable penetration rate for margin loans.
For the stock repo balance of the whole A-share market, we assume a 1.8% penetration rate (defined as the stock repo balance as a percentage of total market cap) at end-2017, and 2.0% at both end-2018 and end-2019.
For stock market annual returns, we mark to market these returns for 2017, and assume flat returns in 2018 and 2019 to avoid basing our forecasts and views on stock-market movements.
For bond market annual returns, we mark to market for 2017, and assume a 4% market return in 2018 and 2019, which is the general level of the blended government bond and corporate bond yield in China.
For the amount of annual equity financing, we expect the high growth in 2017 YTD to continue into 2018 and 2019 given the large IPO pipeline and potential acceleration of secondary equity offerings.
For the amount of annual bond financing, we assume a 10% annual increase for 2017- 19 given the high base in 2016.
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Guotai Junan Securities (2611 HK): 18 July 2017
Company-level financial forecasts We assume market- Our company-level forecasts for GTJA are summarised below. share gains for investment banking and For investment banking revenue, we forecast market-share gains for both GTJA’s equity expect a flat market and debt underwriting businesses, despite some fee rate weaknesses. We forecast its share for GTJA’s investment banking revenue to rise at a 31% CAGR over 2016-19E despite the high base brokerage business in 2016. For the brokerage business, we expect market-share gains and a similar pace of commission rate decline as compared to the whole sector in 2017-19E. Our brokerage revenue forecast implies a 21.5% increase during 2017-19E due mainly to the market trading volume increase and GTJA’s market share gains. We forecast +7%, +20%, and +17% YoY net profit For asset management fees, we forecast asset management fees to grow at 22.3% over growth for GTJA over 2017-19E as the whole sector may see moderating growth due to regulation curbs on 2017-19E, respectively outsourced investment.
For investment income, we expect a mild rebound in 2018 and 2019. GTJA saw a low base in 2016. The Shanghai Composite Index has increased by 2.4% YTD (17 July 2017).
Net interest income will rise at a 16% CAGR over 2017-19E on our forecasts due to mild market-share gains in margin lending and declining financing costs. We forecast GTJA’s market share in margin lending to be 6.4%, 6.7% and 7.0% by the end of 2017, 2018, and 2019, respectively, which correspond to around CNY62bn, CNY71bn, and CNY83bn at margin loan balances. Meanwhile, we forecast its market share in stock repo to be 9.5% by the end of 2017, 10.5% at end-2018, and 11.5% at end-2019, which correspond to around CNY91bn, CNY106bn, and CNY123bn in stock repo balances.
Expenses. We forecast GTJA’s cost-to-income ratio (excluding finance costs) to range between 37-40% over 2017-19E. We understand most components of its expenses are positively correlated to revenue from its major business lines.
Net profit. We forecast +7%, +20%, and +17% YoY net profit growth for GTJA over 2017- 19E, respectively.
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Guotai Junan Securities (2611 HK): 18 July 2017
Valuation and risks Fair value = PBR of 1.4x Our 1.4x target PBR is derived through SOTP methodology (from a Gordon Growth Model), including a target PBR of 1.5x on a 2017E book value for its ex-support fund underlying business. Our target PBR implies a fundamental 12-month forward target price of HKD22.0. The current sector average PBR, on a market-cap-weighted basis, is 1.1x for the H-share China securities firms based on Daiwa forecasts for stocks under our coverage.
Valuation methodology Similar to other major Chinese securities firms, GTJA injected its own capital of CNY17bn into the national stock market “support fund”, a fund set up by the China Securities and Finance Corporation in mid-2015 to prop up the stock market. The “support fund” is classified as available for sale (AFS) on GTJA’s balance sheet.
We use SOTP methodology to value the China securities firms, wherein the “support fund” is separately valued. We understand that the volatility and transparency related to the fund has been a concern for global investors eyeing China brokerage stocks. We believe using SOTP methodology can help investors distinguish between volatility from such a pure cyclical item on companies’ balance sheets and the fundamental businesses. For the rest of the businesses, we use a Gordon Growth Model, based on our sustainable ROA estimates and leverage, and hence sustainable ROEs. (For details of our valuation methodology, see Distinguishing cyclicality from secularity, published 7 June 2016)
We use SOTP Gordon Growth Model to value the underlying business methodology to value For the ex-support-fund underlying business, we use a 9.0% cost of equity, a terminal GTJA’s underlying growth rate of 8% and a sustainable ROE of 9.5%, reflecting an ROA of 2.8% and leverage business and the of 3.4x. “support-fund” contribution separately ROE. Our ROE of 9.5% is based on an ROA of 2.8% and a leverage of 3.4x. The ROA level reflects the cyclical nature of the securities business in China. The leverage is at the low end, reflecting capital under-utilisation when the equity market in China is depressed.
Cost of equity (COE). We use a COE of 9.0% for GTJA. We derive our COE assumptions from the capital asset pricing model (risk-free rate + beta*risk premium). Our COE assumptions are based on a uniform risk-free rate of 3% and a risk premium of 5%. We use a beta of 1.2x for GTJA, given it is a large-sized listed securities firm among all the H- share-listed Chinese securities firms.
Terminal growth. We forecast long-term annual business growth of 8% for GTJA, which is applied across the H-share securities firms under our coverage.
GTJA: sensitivity analysis on terminal growth and COE Terminal growth Target price 7.8% 7.9 % 8.0% 8.1% 8.2% 8.60% 30.83 33.10 36.13 40.37 46.74 8.80% 24.82 25.92 27.30 29.07 31.43 COE 9.00% 20.82 21.36 22.00 22.79 23.77 9.20% 17.96 18.20 18.47 18.79 19.18 9.40% 15.82 15.88 15.95 16.03 16.12
Source: Company, Daiwa forecasts
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Guotai Junan Securities (2611 HK): 18 July 2017
The support fund We marked the support The “support fund” is classified as AFS securities on the books of all securities firms under fund to market to our coverage. Moreover, the China Securities and Finance Corporation (CSFC) provides a determine its intrinsic valuation report on a quarterly basis to all brokers that contribute funds. The fair-value value changes of the “support fund” are reflected on the balance sheets (net assets) of the securities firms, but do not affect their P&Ls (they go through Other Comprehensive Income).
For the “support fund” part, we estimate the cost of this fund to GTJA for the two batches of contributions to CSFC based on the original value, then marked to market according to CSFC’s investment performance to reach a per-share value of the contribution to the “support fund”.
Relative valuation In the table below, we compare the key valuation metrics for major listed Chinese securities firms on the H-share and A-share stock markets. Also, we provide the valuations of major securities firms in Asia and investment banks globally as a reference.
Valuation comparison Company Ticker Rating Market cap Current PBR PER ROE (%) ROA (%) Leverage (x) (USDbn) price FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19
CHINA - H SHARE
CITICS 6030 HK Outperform 29 16.18 1.1 1.0 1.0 13.0 11.0 10.3 8.9 9.9 9.8 2.1 2.2 2.0 4.3 4.6 4.8 HTS 6837 HK Hold 23 12.74 1.1 1.0 0.9 12.5 10.2 9.6 8.9 10.2 10.2 1.8 2.1 2.0 5.0 4.9 5.1 GTJA 2611 HK Buy 26 16.64 1.0 1.0 0.9 11.5 9.9 8.5 9.6 10.1 11.0 2.5 2.7 2.9 3.9 3.7 3.8 GFS 1776 HK Hold 18 15.98 1.3 1.2 1.1 12.3 10.5 9.0 10.6 11.5 12.5 2.4 2.7 3.0 4.4 4.3 4.2 Huatai 6886 HK Buy 18 15.48 1.1 1.0 0.9 11.8 10.1 8.5 9.4 11.0 11.4 1.9 2.3 2.4 4.9 4.8 4.8 CGS 6881 HK Hold 14 6.99 0.9 0.9 0.8 10.9 9.2 8.8 8.9 9.8 9.6 2.1 2.3 2.2 4.2 4.3 4.4 CMS 6099 HK Hold 16 12.24 1.1 1.0 1.0 12.3 10.2 9.4 9.4 10.6 10.6 2.4 2.8 2.8 3.9 3.8 3.8 CSC 6066 HK Buy 7 7.09 0.9 0.8 0.7 8.0 7.0 6.6 12.6 12.8 11.9 2.9 3.0 2.9 4.4 4.3 4.1 Orient Securities 3958 HK NR 12 7.65 1.0 0.9 0.8 14.1 11.2 9.8 7.1 8.8 10.5 1.5 1.7 1.9 4.7 5.3 5.6 Everbright Securities 6178 HK NR 10 10.74 0.9 0.8 0.8 12.8 10.6 9.8 7.0 8.5 8.7 n/a n/a n/a n/a n/a n/a CICC 3908 HK NR 6 12.50 1.2 1.1 1.0 11.3 10.5 8.4 11.8 11.1 11.7 2.2 2.0 2.0 5.4 5.6 5.8 Haitong Intl 665 HK NR 3 4.51 1.0 0.9 0.9 9.7 8.4 7.5 10.2 11.1 12.2 1.8 1.9 1.9 5.8 6.0 6.4 Guotai Junan Intl 1788 HK NR 2 2.49 1.8 1.6 1.5 14.1 12.7 10.7 13.9 14.9 15.9 2.7 2.7 2.4 5.1 5.5 6.7 Sector 180 1.1 1.0 0.9 12.1 10.2 9.2 9.3 10.3 10.6 2.0 2.2 2.3 4.2 4.2 4.3 CHINA - A SHARE CITICS 600030 CH NR 29 17.00 1.4 1.3 1.2 16.7 14.6 12.2 8.1 9.0 10.2 2.0 2.3 2.5 4.0 4.0 4.0 HTS 600837 CH NR 23 14.89 1.4 1.3 1.2 18.1 15.5 13.4 8.4 9.2 9.6 1.7 1.9 2.1 4.9 4.9 4.7 GTJA 601211 CH NR 26 20.75 1.6 1.5 1.4 15.8 13.8 11.4 10.7 11.7 n/a n/a n/a n/a n/a n/a n/a GFS 000776 CH NR 18 17.12 1.5 1.4 1.3 14.5 12.7 10.9 10.7 11.3 12.0 2.5 2.7 3.0 4.2 4.2 4.1 Huatai 601688 CH NR 18 18.58 1.5 1.4 1.3 18.6 16.1 14.4 8.2 8.8 9.5 1.8 1.9 2.0 4.5 4.5 4.8 CGS 601881 CH NR 14 11.39 1.7 1.6 1.2 21.1 19.0 13.9 8.5 8.8 9.1 2.2 2.2 2.4 3.9 4.0 3.9 CMS 600999 CH NR 16 17.38 1.8 1.6 1.4 18.9 16.1 13.7 9.9 10.9 11.4 2.5 2.8 3.3 3.9 3.9 3.5 Guosen 002736 CH NR 16 13.37 2.0 1.8 2.0 19.2 16.2 14.6 11.1 11.5 11.9 2.5 2.6 2.7 4.5 4.5 4.5 Shenwan Hongyuan 000166 CH NR 17 5.62 1.6 1.4 1.1 16.9 15.0 13.4 10.2 10.0 8.6 2.2 2.3 2.3 4.6 4.4 3.8 Everbright Securities 601788 CH NR 10 14.94 1.3 1.2 1.0 19.4 18.0 15.7 6.8 7.1 6.6 2.0 2.1 1.9 3.4 3.4 3.4 Industrial Securities 601377 CH NR 8 7.62 1.5 1.3 1.1 19.4 16.6 15.6 7.2 7.9 7.9 1.7 1.7 1.7 4.2 4.6 4.5 Changjiang Securities 000783 CH NR 8 9.30 1.8 1.6 1.3 20.4 17.9 14.3 9.3 9.9 9.9 2.4 2.6 2.8 3.9 3.8 3.6 Sinolink Securities 600109 CH NR 5 10.96 1.7 1.6 1.3 22.3 19.0 13.7 8.1 9.0 10.6 3.0 3.4 3.9 2.7 2.6 2.7 Sector 208 1.6 1.4 1.3 17.9 15.6 13.2 9.2 9.9 8.8 1.9 2.0 2.2 3.7 3.7 3.6 REGIONAL
Nomura Holdings 8604 JP Outperform 23 667 0.8 0.8 0.8 10.6 10.0 8.6 8.4 8.4 9.7 n/a n/a n/a n/a n/a n/a Daiwa Securities 8601 JP NR 10 665 0.8 0.8 0.8 10.9 10.4 10.3 8.0 8.1 7.7 0.5 0.5 0.5 16.0 15.2 15.4 Yuanta Financial 2885 TT NR 5 13.10 0.8 0.7 0.7 10.9 9.8 9.0 7.1 7.7 8.1 0.6 0.6 0.5 11.7 13.1 16.4 Samsung Securities 016360 KS NR 3 40,850 0.8 0.8 0.7 14.8 13.6 12.2 5.8 5.8 6.2 0.7 0.7 0.7 8.4 8.2 8.5 Daewoo Securities 006800 KS NR 7 11,400 0.9 0.9 0.9 16.3 14.4 12.9 6.0 6.5 7.1 0.7 0.7 0.7 9.0 9.5 9.9 Sector 48 0.8 0.8 0.8 11.8 10.9 9.9 7.6 7.8 8.5 0.3 0.3 0.3 6.5 6.5 7.0 GLOBAL
Goldman Sachs GS US Hold 94 228.60 1.2 1.1 1.0 12.5 11.2 10.0 10.0 10.4 10.8 0.9 0.9 0.9 11.6 11.4 11.7 UBS UBSG VX NR 67 16.80 1.2 1.1 1.1 12.5 11.7 10.6 8.0 9.7 10.6 0.4 0.6 0.6 19.0 17.0 17.1 Morgan Stanley MS US Hold 84 45.20 1.2 1.1 1.0 13.4 11.6 10.7 9.0 9.8 10.5 0.7 0.8 0.9 12.3 11.8 11.8 Credit Suisse Group CSGN VX NR 39 14.52 0.8 0.8 0.7 18.9 12.3 9.4 4.4 7.0 8.5 0.2 0.4 0.5 21.6 19.9 18.7 Lazard LAZ US NR 6 46.25 4.5 4.0 3.2 13.5 12.6 11.9 38.0 39.8 n/a 9.4 10.1 n/a 4.1 3.9 n/a Sector 289 1.2 1.1 1.0 13.6 11.6 10.3 9.1 10.2 10.1 0.8 0.9 0.8 14.7 13.8 13.7
Source: Bloomberg, Daiwa forecasts Note: Daiwa forecasts for CITICS, HTS, GTJA, GFS, Huatai, CGS, CMS and CSC H-share; Bloomberg consensus for other stocks. Priced as of 17 Jul 2017.
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Guotai Junan Securities (2611 HK): 18 July 2017
Risks Overpaying in potential overseas acquisitions We are concerned that GTJA mentioned in its H-share IPO prospectus that 15% of its IPO proceeds (around GTJA may overpay for HKD2.4bn) would be used for developing its international business. We understand that overseas acquisitions GTJA is seeking opportunities to further expand its overseas presence. Given the that do not add to its uncertainties in overseas acquisitions, we are concerned that GTJA may overpay for business synergies overseas acquisitions that do not add to its business synergies.
Prolonged delays in deregulation of innovative businesses GTJA has showed its capability in product innovation and in capitalising on new business opportunities. Having said that, if China’s securities regulators are overly conservative in terms of market development and deregulation, GTJA would not be able to fully utilise its innovative capabilities.
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Guotai Junan Securities (2611 HK): 18 July 2017
Appendix Company background and industry position GTJA was founded in Shanghai as a joint-stock limited company on 18 August 1999, through the merger of Guotai Securities and Junan Securities. In December 2001, Guotai Junan IM was spun off from the company.
The company generated CNY36.0bn in total revenue in 2016, 42.4% of which was driven by personal finance and 33.7% driven by institutional finance including proprietary trading. In 2016, the company’s total asset and net capital ranked third and second in the industry, respectively (at the listed-company level).
In 2016, the company had 31 provincial branches and 368 securities branches across 30 provinces in China and ranked second in the industry in terms of the number of branches. The company served more than 20,000 institutional investors and 8.5 million personal finance clients in 2016.
GTJA: distribution of securities branches GTJA: segment revenue mix (2016)
6.10% 1.90%
Institutional finance 15.90% 33.70% Personal finance Investment management International business 42.40% Others
Source: Company, Daiwa Source: Company, Daiwa Note: at end-2016
China Securities Sector: ranking of major China securities firms (CNYm) Operating income Rank Net profit Rank Total asset Rank Net assets Rank Net capital Rank ROE (%) Rank CITICS 38,002 1 10,981 2 597,439 1 145,789 1 93,504 1 7.36 17 HTS 28,012 2 8,931 3 560,866 2 121,958 2 78,664 3 7.39 16 GTJA 25,765 3 11,353 1 411,749 3 110,752 3 80,338 2 10.08 8 GFS 20,712 4 8,409 4 359,801 5 81,353 5 66,819 4 10.29 7 Huatai 16,917 5 6,519 5 401,450 4 85,660 4 45,122 8 7.59 15 Shenwan Hongyuan 14,815 6 5,504 6 263,148 6 52,829 8 n/a n/a 10.62 4 CSC 13,259 7 5,313 8 181,695 11 41,263 11 36,198 10 14.78 2 CGS 13,240 8 5,185 9 245,881 7 58,354 7 53,109 5 8.97 12 Guosen 12,749 9 4,556 10 193,029 10 48,445 10 46,368 6 9.27 10 CMS 11,695 10 5,417 7 243,058 8 59,915 6 45,524 7 9.99 9 Everbright Securities 9,165 11 3,077 11 177,637 12 48,637 9 39,747 9 6.87 19 Zhongtai Securities 8,337 12 2,533 14 123,026 16 32,800 15 22,695 14 7.80 14 Founder Securities 7,760 13 2,582 12 152,339 13 36,197 13 21,859 15 7.30 18 Essence Securities 7,674 14 2,552 13 122,588 17 21,5old81 18 16,739 17 11.83 3 Industrial Securities 7,589 15 2,344 16 136,535 14 34,298 14 30,797 12 8.15 13 Ping An Securities 7,356 16 2,215 18 90,950 20 25,648 17 20,474 16 9.07 11 CICC 7,322 17 1,840 19 101,948 19 18,497 19 14,164 18 10.43 5 Orient Securities 6,877 18 2,427 15 212,411 9 40,938 12 33,890 11 6.13 20 Changjiang Securities 5,857 19 2,217 17 107,095 18 25,742 16 24,165 13 10.43 5 Huarong Securities 5,320 20 1,577 20 135,750 15 10,800 20 13,993 19 15.52 1
Source: Wind, SAC, Companies and Daiwa Note: (1) On China GAAP; (2) for 2016 or as of end-2016; (3) All in terms of group level (including minority stakes; net profits before minority interests)
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Guotai Junan Securities (2611 HK): 18 July 2017
Shareholding structure and major business subsidiaries In May 2014, GTJA acquired a 51% equity interest in Shanghai Securities (not listed) from International Group (not listed) for a total consideration of CNY3,571m. In June 2015, the company listed on the Shanghai Stock Exchange (stock code: 601211). In order to comply with regulatory requirements, in December 2015, Shanghai Securities sold its 66.67% equity interest in Haiji Securities (not listed) to Guiyang Financial Holdings Limited (not listed) for CNY3,011.2m.
GTJA is in the process of acquiring HuaAn Funds through Guotai Junan Innovation Investment from Shanghai Electric. The acquisition is subjected to the approval of the China Securities Regulatory Commission (CSRC). GTJA has put its 51% equity interest in GTJA Allianz Funds up for sale on January 2017 at the initial tender price of CNY1,045m.
GTJA directly holds shares in 7 first-tier subsidiaries established in China and Hong Kong. GTJA holds 64.91% of the issued share capital of Guotai Junan International through Guotai Junan Financial Holdings and its subsidiaries. Guotai Junan International is the overseas platform of GTJA and is primarily engaged in brokerage, corporate finance, asset management, loans and financing, market making and investments. In July 2010, Guotai Junan International listed on the Hong Kong Stock Exchange (stock code: 1788 HK).
GTJA: shareholding and group structure
International Group
100% 66.33% 100% 9.64%
International Group Asset Management
0.47% 100%
Shenzhen Other holders of Other holders of Shanghai Sitico International Group Shanghai SA Investment A Shares in H Shares in Assets Management Asset Operation Holdings aggregate aggregate
21.96% 0.87% 0.01% 8.18% 48.57% 10.31%
Guotai Junan Securities Co., Ltd.
100% 100% 100% 100% 51% 51% 100%
Guotai Junan Guotai Junan Guotai Junan Asset Guotai Junan GTJA Allianz Guoxiang Innovation Shanghai Securities Financial Holdings Management Futures Funds Properties Investment
100%
Guotai Junan Holdings
64.91%
Guotai Junan International
Source: Company, Daiwa Note: GTJA publicly offered its 51% equity interest in GTJA Allianz Funds for sale on January 9, 2017
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Guotai Junan Securities (2611 HK): 18 July 2017
Senior management profile Mr. Yang Dehong (Chairman of the Board and Executive Director, 50). Mr. Yang served as the general manager’s assistant of International Group from July 2005 to April 2008 and as the deputy general manager of International Group from April 2008 to September 2014. Mr. Yang also served concurrently in the following positions: general manager of Shanghai SITICO International Consulting Co., Ltd. from August 2000 to September 2002; deputy general manager of Shanghai Trust from February 2004 to July 2005; general manager of Shanghai AJ Group Co., Ltd. from August 2009 to February 2014; chairman of the board of Tullett Prebon SITICO (China) Ltd. from December 2005 to April 2014; and the chairman of the board of Shanghai Equity Exchange Co., Ltd. from November 2011 to September 2014. Thereafter Mr. Yang held various positions in the company, including the president of the company from November 2014 to May 2015; the chairman of the Board and the president of the company from May 2015 to August 2015; the chairman of the company since August 2015; and the chairman of Guotai Junan Financial Holdings from May 2015 to March 2016. Mr. Yang also served as a director of SPD Bank, a company listed on the Shanghai Stock Exchange (stock code: 600000), from November 2008 to April 2015. Mr. Yang obtained a bachelor’s degree in economics from Fudan University in Shanghai in July 1989, and a master’s degree in business administration from China Europe International Business College in Shanghai in April 2002.
Mr. Wang Song (Vice Chairman of the Board, Executive Director and President, 53). Mr. Wang served as the president assistant and the president of the fixed income securities head office of the company from October 2003 to August 2006; the vice president of the company from August 2006 to August 2015; the president of the company from August 2015 to September 2015; the vice chairman of the Board, a director and the president of the company from September 2015 to May 2016; and a director and the president of the company from May 2016 to November 2016. Mr. Wang has held the positions of vice chairman of the Board, a director and the president of the company since November 2016, and the chairman of the board of Guotai Junan Financial Holdings concurrently since March 2016. Mr. Wang obtained a bachelor’s degree in engineering and a postgraduate diploma in industrial management engineering from the Central China Industry College (currently known as Huazhong University of Science and Technology) in Wuhan in July 1985 and July 1987, respectively.
Mr. Zhu Jian (Vice President, 45). Mr. Zhu served as a deputy division head and division head of the information research division of the CSRC Shanghai Branch from March 2004 to October 2004; the head of general office and the division head of the second institution division of CSRC Shanghai Branch from October 2004 to September 2008; an assistant of director general of CSRC Shanghai Branch from September 2008 to August 2010; and a deputy director general of CSRC Shanghai Branch from August 2010 to September 2016. Mr. Zhu joined the company in September 2016 and was appointed as vice president since November 2016. Mr. Zhu graduated from Fudan University in Shanghai with a master’s degree in law in July 1996. He obtained a master’s degree in business management from Shanghai Jiao Tong University in June 2013 in Shanghai.
Mr. Jiang Yiming (Vice President, 53). Mr. Jiang served as the chief accountant from September 2000 to November 2013, the general manager of the clearance headquarters from March 2004 to September 2005, and the chief financial officer from April 2003 to November 2016. Mr. Jiang was appointed as vice president of the company since November 2013. Mr. Jiang has also been serving as a director of Guotai Junan Asset Management since August 2010. Mr. Jiang obtained a master’s degree in economics and a doctorate degree in management from Southwest University of Finance and Economics (西南財經大學) in Chengdu in June 1990 and December 2006, respectively. Mr. Jiang was conferred the accounting professional qualification certificate by the Ministry of Finance of the PRC in December 1992.
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Guotai Junan Securities (2611 HK): 18 July 2017
Mr. Chen Yutao (Vice President and Chief Information Officer, 54). Mr. Chen served as the general manager of the Shenzhen Branch from April 2003 to September 2005, the general manager of retail customer headquarter from September 2005 to October 2008, and the general manager of human resources from October 2008 to July 2011, the chief engineer from July 2011 to July 2014, and was appointed as chief information officer in November 2013 and as vice president since November 2016. Mr. Chen has served as a director of E-Capital Transfer Co., Ltd. (证通股份有限公司) since January 2015. Mr. Chen obtained a bachelor’s degree in engineering from Jinling Institute of Technology in March 1986 in Nanjing, and a master’s degree in economics from Shanghai University of Finance and Economics in January 1988 in Shanghai.
Mr. Gong Dexiong (Vice President, 47). Mr. Gong served as the general manager of the financial management headquarters of International Group from November 2011 to March 2013. Mr. Gong was general manager of Shanghai Securities from March 2013 to September 2015, the vice chairman of Shanghai Securities from May 2014 to November 2015, and the chief executive officer of Guotai Junan Asset Management from August 2015 to April 2016. Mr. Gong was appointed as the chairman of Guotai Junan Asset Management in August 2015, the chairman of Shanghai Securities in May 2015, and a vice president of the company in November 2016. Mr. Gong obtained a bachelor’s degree in law from East China University of Political Science and Law in Shanghai in July 1992, and a master’s degree in business administration from China Europe Internal Business School in Shanghai in September 2008.
Ms. Liu Guifang (Chief Risk Officer and Compliance Officer, 53). Ms. Liu was appointed chief compliance officer in December 2008, served as vice president from June 2011 to November 2016, was appointed as chief risk officer in March 2014 and has served as the chairman of Guoxiang Properties since January 2014. Ms. Liu graduated from Shanghai Construction Material Industry Junior School majoring in finance and accounting in July 1983 in Shanghai, and obtained a master’s degree in economics from Zhongnan University of Finance and Economics (currently known as Zhongnan University of Economics and Law) in November 1989 in Wuhan. Ms. Liu was conferred the title of senior accountant by the Department of Personnel of Guangdong Province in January 1998.
Mr. Yu Jian (Executive Director, Secretary to the Board and the Head of the Office of the Board, 52). Mr. Yu served as the deputy general manager of the investment banking department of the company from August 1999 to September 2000, the deputy division head, division head and the general manager of the corporate finance department of the company from September 2000 to May 2008, and the head of the listing office of the company from May 2008 to June 2009. Mr. Yu has been appointed as the secretary to the Board since March 2009, the head of the office of the Board since January 2016, and a director of the company since May 2016. Mr. Yu obtained a bachelor’s degree in engineering from the Beijing Institute of Aeronautics (currently known as Beihang University) in Beijing in July 1986, and a master’s degree in business administration jointly granted by Shanghai National Accounting Institute and Arizona State University in May 2011.
Mr. Xie Lebin (Chief Financial Officer, 49). Mr. Xie served as the general manager of the planning and finance department of the company from February 2012 to November 2015, and as deputy chief financial officer and the general manager of the planning and finance department from November 2015 to November 2016. Mr. Xie was appointed as chief financial officer and concurrently as general manager of the planning and finance department in November 2016. Mr. Xie obtained a bachelor’s degree in economics from the Shanghai Fisheries University (currently known as the Shanghai Ocean University) in Shanghai in July 1990, and a master’s degree and a doctorate degree in economics from East China Normal University in Shanghai in July 1993 and June 2010, respectively. Mr. Xie was awarded the International Certified Internal Auditors’ Certificate from the International Institute of Internal Auditors in November 2009.
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Guotai Junan Securities (2611 HK): 18 July 2017
Daiwa’s Asia Pacific Research Directory
HONG KONG SOUTH KOREA Takashi FUJIKURA (852) 2848 4051 [email protected] Sung Yop CHUNG (82) 2 787 9157 [email protected] Regional Research Head Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Jiro IOKIBE (852) 2773 8702 [email protected] Shipbuilding; Steel Co-head of Asia Pacific Research Mike OH (82) 2 787 9179 [email protected] John HETHERINGTON (852) 2773 8787 [email protected] Banking; Capital Goods (Construction and Machinery) Co-head of Asia Pacific Research Iris PARK (82) 2 787 9165 [email protected] Kevin LAI (852) 2848 4926 [email protected] Consumer/Retail Chief Economist for Asia ex-Japan; Macro Economics (Regional) SK KIM (82) 2 787 9173 [email protected] Olivia XIA (852) 2773 8736 [email protected] IT/Electronics – Semiconductor/Display and Tech Hardware Macro Economics (Hong Kong/China) Thomas Y KWON (82) 2 787 9181 [email protected] Kelvin LAU (852) 2848 4467 [email protected] Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Games Head of Automobiles; Transportation and Industrial (Hong Kong/China) Leon QI (852) 2532 4381 [email protected] TAIWAN Regional Head of Financials; Banking; Diversified financials; Insurance Rick HSU (886) 2 8758 6261 [email protected] (Hong Kong/China) Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design (Regional) Yan LI (852) 2773 8822 [email protected] Nora HOU (886) 2 8758 6249 [email protected] Banking (China) Banking; Diversified financials; Insurance Anson CHAN (852) 2532 4350 [email protected] Steven TSENG (886) 2 8758 6252 [email protected] Consumer (Hong Kong/China) IT/Technology Hardware (PC Hardware) Adrian CHAN (852) 2848 4427 [email protected] Kylie HUANG (886) 2 8758 6248 [email protected] Consumer (Hong Kong/China) IT/Technology Hardware (Handsets and Components) Jamie SOO (852) 2773 8529 [email protected] Helen CHIEN (886) 2 8758 6254 [email protected] Gaming and Leisure (Hong Kong/China) Small/Mid Cap John CHOI (852) 2773 8730 [email protected]
Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap INDIA Alex LIU (852) 2848 4976 [email protected] Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Internet (Hong Kong/China) Head of India Research; Strategy; Banking/Finance Carlton LAI (852) 2532 4349 [email protected] Saurabh MEHTA (91) 22 6622 1009 [email protected] Small/Mid Cap (Hong Kong/China) Capital Goods; Utilities Dennis IP (852) 2848 4068 [email protected]
Power; Utilities; Renewables and Environment (Hong Kong/China) SINGAPORE Jonas KAN (852) 2848 4439 [email protected] Ramakrishna MARUVADA (65) 6499 6543 [email protected] Head of Hong Kong and China Property Head of Singapore Research; Telecommunications (China/ASEAN/India) Cynthia CHAN (852) 2773 8243 [email protected] David LUM (65) 6329 2102 [email protected] Property (China) Banking; Property and REITs Thomas HO (852) 2773 8716 [email protected] Royston TAN (65) 6321 3086 [email protected] Custom Products Group Oil and Gas; Capital Goods
Shane GOH (65) 64996546 [email protected] PHILIPPINES Property and REITs; Small/Mid Cap (Singapore) Micaela ABAQUITA (63) 2 737 3021 [email protected] Jame OSMAN (65) 6321 3092 [email protected] Property Transportation – Road and Rail; Pharmaceuticals and Healthcare; Consumer (Singapore)
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Guotai Junan Securities (2611 HK): 18 July 2017
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Guotai Junan Securities (2611 HK): 18 July 2017
Important Disclosures and Disclaimer
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United Kingdom
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Guotai Junan Securities (2611 HK): 18 July 2017
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Ownership of Securities For “Ownership of Securities” information please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
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Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.
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The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months.
Disclosure of investment ratings Rating Percentage of total Buy* 66.1% Hold** 21.6% Sell*** 12.3% Source: Daiwa Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 30 June 2017. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings.
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