Industrial Securities: 2026 Securities Industry ROE Requires Market Momentum Support; Universal Dividend Yield Increase Could Be Catalyst for Valuation Expansion

Stock News12-01

Industrial Securities Co.,Ltd. released a research report stating that the securities industry's ROE in 2026 will require sustained high market momentum to achieve further growth on a relatively high base. Under neutral assumptions, the report forecasts the industry's 2026 revenue and net profit at RMB 660 billion (+16.1% YoY) and RMB 290.4 billion (+18.8% YoY) respectively.

Top-down regulatory guidance and shifting capital utilization structures are expected to drive a gradual increase in the industry's dividend payout ratio. This universal improvement in dividend yields may present a significant opportunity for valuation expansion. Key insights include:

1. **2025 Performance Review**: - A-shares showed strong performance while securities sector underperformed, with Shenwan Securities II Index gaining 6.1% but trailing the broader market by 11.8 percentage points. - Hong Kong-listed Chinese brokers outperformed. - Improved equity market activity and directional investments supported profits, with 42 listed brokers posting combined revenue of RMB 419.56 billion (+42.6% YoY) and net profit of RMB 169.05 billion (+62.4% YoY) for Q1-Q3 2025.

2. **Industry Reshaping**: - The traditional model of small/mid-sized brokers expanding via equity financing to grow balance sheets is being disrupted. - Four regulatory trends driving consolidation: * Capital-intensive development restrictions * New市值 management rules limiting undervalued brokers' rights offerings * Revised 2025 classification ratings emphasizing ROE * Compensation reforms curbing talent poaching from top firms

3. **Operational Shifts**: - **Top brokers** are building capabilities independent of market volatility through: * Global expansion (e.g., CITIC Securities' international business contributing 20% of profit with 20%+ ROE) * Derivatives-driven balance sheet services (e.g., CICC's stock derivatives income doubling YoY) * Platform-based integrated services - **Mid-sized brokers** must: * Strengthen core brokerage through client base expansion/new models * Develop stable investment mechanisms and teams to weather market cycles

**Risks**: Equity market volatility; tighter regulation; significant credit impairment provisions; fee rate declines.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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