Chinese Brokerages See Strong Growth in First-Half Profits
As China’s stock markets rebound from last year’s rout, Chinese listed securities companies are projected to post at least 50% growth in net profits for the first half of 2019 and significant growth for the full year.
Citic Securities Co., China’s largest brokerage, signaled the highest revenue and profit among brokerages that have released first-half earnings estimates. The company expects to report a 9% increase in revenue to 21.9 billion yuan ($3.2 billion) and a 16% gain in profit to 6.4 billion yuan.
Shenzhen-listed brokerage Shenwan Hongyuan Group Co. said it expects that first-half revenue expanded 73% and net profit, 56%.
Small and medium-sized securities companies, which were hit particularly hard last year by the worst stock market performance in a decade, are showing bigger year-over-year revenue and profit growth, reflecting lower starting points and significant improvements in investment business.
In 2018, the net profits of 35 listed brokerages declined by 40%, with 13 companies suffering a profit drop of more than 50%.
China’s was the worst-performing major stock market in the world last year, with major indexes in Shanghai and Shenzhen losing a quarter of their value as slower economic growth and an escalating trade war with the U.S. hurt investors’ sentiment. The two indexes rebounded by 20% and 30% so far this year.
Shenzhen-listed medium-sized brokerage Shanxi Securities Co. said it expects to report a net profit of 380 million yuan to 470 million yuan in the first half of this year, more than three times earnings for the same period last year. The company attributed the strong growth to recovering stock markets and active trading by investors.
Sealand Securities Co., another Shenzhen-listed medium-sized brokerage, projected a nearly 300% increase in its first-half profits. In addition to accelerated stock trading, the brokerage said a pickup in volume on the interbank market and bond issuance also boosted the company’s earnings.
Hongta Securities, a Yunnan-based medium-sized brokerage that went public earlier this month, disclosed in its prospectus that it expects to report profit doubled or even tripled to 184 million to 276 million yuan for the first half.
East Money Information Co., a Shenzhen-listed brokerage and stock information website provider, expects to report growth of 45%-66% in first-half profit. The company said more customers opened stock trading accounts compared with the same period last year, and the fund sales business grew steadily.
While brokerages are generally benefiting from the market recovery, some securities companies affected by stock-pledge repurchase and creditor investment projects have made asset-impairment provisions.
Orient Securities Co. recorded an asset impairment provision of 445 million yuan; Western Securities Co., 282 million yuan; and Sealand Securities, 126 million yuan. Such provisions affected the performance of brokerages to a certain extent, but the overall risk is under control, according to analysts at Tianfeng Securities Co.
The asset impairment loss caused by risks related to the stock-pledge business hit brokerages’ 2018 results hard, but this problem has been alleviated as the stock markets recover this year, Tianfeng Securities analysts said. They projected that securities companies will maintain high growth rates in the second half.
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