CITIC Construction Investment: Brokerage Sector's Strong Performance Resonates with Policy Support, Reinforcing Upward Revisions in Valuation Expectations, Highlighting the Value of Sector Allocation

China Securities Journal Research Report states that, by 2025, the net profits of listed securities firms are generally expected to see significant growth, mainly benefiting from the year-over-year increase in average daily trading volume and the sustained high level of margin financing balances. Several securities firms are projected to see net profit increases of over 70%. Meanwhile, the implementation of reserve requirement ratio cuts, interest rate reductions, and long-term capital market entry plans, along with optimized classification evaluations, are opening up capital space for high-quality securities firms, and the effects of mergers and acquisitions are becoming evident. On a macroeconomic level, the economy has successfully achieved a 5% growth target, and the activity level of the capital market has reached a ten-year high, providing solid support for performance. Currently, the sector’s price-to-book (PB) ratio is only 1.36 times, placing it in the middle range historically. Improved performance and policy dividends are expected to drive the valuation center upward.

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The performance of listed securities firms is generally optimistic for the year, with ample room for valuation upgrades

Securities: The high growth in securities firms’ performance resonates with favorable policy signals, strengthening expectations for valuation upgrades, and highlighting the sector’s allocation value. By 2025, the net profits of listed securities firms are expected to achieve significant growth, mainly benefiting from the year-over-year increase in average daily trading volume and the sustained high level of margin financing balances. Several securities firms are projected to see net profit increases of over 70%. Meanwhile, the implementation of reserve requirement ratio cuts, interest rate reductions, and long-term capital market entry plans, along with optimized classification evaluations, are opening up capital space for high-quality securities firms, and the effects of mergers and acquisitions are becoming evident. On a macroeconomic level, the economy has successfully achieved a 5% growth target, and the activity level of the capital market has reached a ten-year high, providing solid support for performance. Currently, the sector’s PB valuation is only 1.36 times, placing it in the middle range historically. Improved performance and policy dividends are expected to drive the valuation center upward.

Insurance: We are optimistic about the continued acceptance of dividend insurance by residents for stable investment needs and its role in driving rapid growth in new policies, which could lead to a “Davis double play” of performance growth and valuation recovery. We believe that the current sales of savings insurance and the transformation of dividend insurance are experiencing a convergence of multiple favorable factors: First, under the environment of shrinking medium- and long-term deposit supply and interest rate fluctuations, savings insurance products are becoming more advantageous. Second, the market acceptance of dividend insurance demand and the sales capabilities of distribution teams are expected to improve. Third, the “reporting and banking integration” initiative is driving the value of bancassurance channels, prompting leading insurers to expand their bancassurance presence. Fourth, savings insurance products, as one of the few financial products capable of providing long-term fixed returns in the post-asset management regulation era, are expected to continue meeting residents’ large demand for stable investment as they transition to net-asset value-based products and reconfigure wealth allocation through non-standard to standard asset conversions. Overall, we are optimistic about the rapid growth of new policy premiums and NBV for listed insurance companies in the first quarter. On the asset side, further improvements in the equity market are expected to boost profit growth, and a long-term slow bull market will also support performance.

Risk Tips: Uncertainty in market price fluctuations, uncertainty in corporate earnings forecasts, technological updates and iterations.

(Source: People’s Financial News)