China's listed stockbrokers witnessed remarkable profit growth in October after suffering from profit declines in September thanks to a round of market bull run since the beginning of October. Analysts deem that foundation for rebounding of the stockbrokers' stocks is mature as their valuation has come to a reasonable level after over five months of deep correction and the negative factors in the industry have been digested.
-- Stockbrokers' profits bottom out in October
According to the financial results released by the listed brokers on Thursday, an overwhelming majority of the listed stock brokerage companies made profits in October. CITIC Securities Co., Ltd. (600030.SH), Haitong Securities Co., Ltd. (600837.SH) and Guotai Junan Securities Co., Ltd. (601211.SH) ranked top three by profit earnings, which recorded a net profit of 1.3 billion yuan, 1.12 billion yuan and 891 million yuan in the month, surging 95.19 percent, 33.08 percent and 87.3 percent from that of the previous month, respectively. Meanwhile, many brokers achieved a net rise of over 100 percent, of which Pacific Securities (601099.SH), Sinolink Securities (600109.SH) and Orient Securities (600958.SH) saw a net rise of 400 percent, 180.05 percent and 157 percent as compared with that in September.
Although the stockbrokerage companies' earnings were heavily hit by market plunges since June, the whole industry still enjoyed higher growth in both revenue and net profit in the first three quarters of the year as compared with the corresponding period of 2014. As indicated in the third-quarter financial reports, the 24 listed brokers as a whole generated revenue totaling 311.92 billion yuan in the first nine months of the year, jumping 161.4 percent year on year. Their combined net profits stood at 130.72 billion yuan, rocketing 210.2 percent on a yearly basis. For the whole industry, China's 124 stockbrokerage companies posted a combined net profit of 192.465 billion yuan in the first three months of the year, of which 119 ones realized profits, according to statistics from the Securities Association of China.
-- Multiples favorable factors expected for stockbrokers
Stockbrokers' shares posted sharp surges since November 4 with all the brokers' shares rising by a daily limit up of ten percent. The strong momentum extended in the following two trading days and the index tracking the block realized its biggest weekly gain of nearly 30 percent since December 2014. The robust rebounding of the stocks was interpreted as an inflection of market expectation for improved earnings of the stockbrokers in 2015.
Haitong Securities deems that along with the regulator's clearing work to illicit stock trade accounts and activities approaching an end and the negative effect from de-leveraging work on brokers' margin trade business being digested, the negative factors on the stockbrokerage companies have been gradually fading out. S
hen Juan, an analyst with Huatai Securities, thinks that a string of upcoming reforms including introduction of a classification system for companies listed on the Over-The-Counter (OTC) stock market, revision to the Law of Securities and an adoption of a registration mechanism to replace current approving mechanism for new share offerings is expected to bring bigger opportunities for stockbrokers. Meanwhile, improved market sentiment, recovery of trading vibrancy, expansion of margin trade turnover will also cast positive impact on the stockbrokers, Shen added.
-- China's 13th Five-Year Plan to benefit stockbrokers
Many analysts believe that the just-released proposal for China's 13th Five-Year Plan has also given strong impetus to the stockbrokers' shares. According to the Proposal, China will actively foster a more transparent and healthier capital market, pushing ahead reform on stock and bond issuing and trading systems, raising proportion of direct financing and lowering leverage ratios in the next five years.
China will also push forward two-way opening-up of the domestic capital market and gradually remove restrictions on investment quota for both domestic and overseas investors. Analysts hold that the stockbrokers' earnings in investment banking business are expected to be largely fattened thanks to the policy support for direct financing in the next five years.
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