As a leading domestic securities firm, Huatai Securities Co., Ltd. delivered slower performance growth compared to its peers last year, with both revenue and net profit increasing by only single-digit percentages. This modest growth rate is particularly unusual given the significant surge in A-share trading volume during the same period.
Furthermore, the company's cash flow situation deteriorated severely, highlighting liquidity pressures. Net cash flow from operating activities turned negative, and the risks associated with funding business expansion have increased. Although its investment banking division showed some strengths, the number of its IPO pipeline projects has fallen out of the industry's top tier.
In addition, Huatai Securities has repeatedly faced compliance issues, with violations emerging across multiple business areas. Internal control weaknesses have also been identified, with significant deficiencies observed across several operational processes. The company’s internal control evaluation has been deemed superficial, and corrective measures have not been adequately implemented.
These issues not only affect the company’s short-term operational performance and market reputation but also hinder its long-term high-quality development. Addressing them will require optimizing the business structure, strengthening compliance management, and improving the internal control system.
Growth Lag and Cash Flow Pressure Reflect Structural Imbalance
In 2025, Huatai Securities reported operating revenue of RMB 35.81 billion and net profit attributable to shareholders of RMB 16.383 billion, representing year-on-year growth of 6.83% and 6.72%, respectively. Although both revenue and profit maintained positive growth, key operational and financial indicators underperformed, diverging from the broader industry trend and revealing underlying structural risks.
The quality of profit growth was relatively low, and the growth rate lagged significantly behind the industry average. While the securities sector’s overall net profit grew by 31.2% year-on-year in 2025, Huatai’s net profit growth was only 6.72%. Performance also declined noticeably in the fourth quarter, with quarterly revenue falling 7.8% year-on-year and 20.4% quarter-on-quarter to RMB 8.68 billion. Net profit for the quarter dropped 29.6% quarter-on-quarter to RMB 3.65 billion, indicating unstable profitability.
The company’s full-year return on equity stood at approximately 7.9%, down 0.1 percentage points year-on-year, which is relatively weak among leading securities firms. Profitability has not kept pace with the expansion of its asset base. By the end of 2025, total assets reached RMB 10.8 trillion, up 32.31% year-on-year, but asset utilization efficiency remained low, meaning scale expansion has not effectively translated into profit advantages.
Cash flow conditions deteriorated significantly, underscoring liquidity pressure. Net cash flow from operating activities was negative RMB 12.602 billion in 2025, compared to positive RMB 68.168 billion in 2024. The reversal was mainly due to large outflows from derivatives business, fluctuations in client margin deposits, and increased funding needs for business expansion.
At the same time, the company’s liabilities rose sharply, with total liabilities reaching RMB 8.70351 trillion and a liability ratio of 80.79%, which is high within the industry. Short-term borrowings surged by 543.71%, while short-term financing payables and bonds payable increased by 109.09% and 58.58%, respectively, indicating heavy reliance on external financing. Net cash flow from financing activities reached RMB 110.79 billion, highlighting a strategy of "borrowing to expand the balance sheet." Long-term liquidity risks cannot be overlooked.
Core business performance remained weak, reflecting an unbalanced business structure. Proprietary business, a key profit driver for securities firms, declined against the trend in 2025, with net investment income falling 4.63% year-on-year to RMB 13.83 billion. In contrast, leading peers such as CITIC Securities, Haitong Securities, and GF Securities reported proprietary business income growth exceeding 40%, highlighting a significant performance gap.
Notably, the disposal of derivative financial instruments resulted in a loss of RMB 16.7 billion, a stark contrast to the RMB 2.25 billion profit recorded in 2024, underscoring weaknesses in investment capability and risk management. Asset management business also contracted sharply, with net asset management income down 56% year-on-year, exposing shortcomings in active management capabilities. The decline in capital-light, high-margin businesses further dragged down overall profitability and asset turnover efficiency.
The company remains heavily reliant on wealth management (44.3% of revenue) and proprietary business, while investment banking and international operations show unstable growth. International business revenue fell 46.75% year-on-year to RMB 5.918 billion, and its share of total revenue dropped from 33.16% to 16.53%. Profitability remains highly sensitive to market conditions, fair value changes, and credit impairment losses, indicating that the company has not fundamentally shifted away from a market-dependent business model.
Although investment banking showed some bright spots, underlying weaknesses persist. Net investment banking fee income rose 47.8% year-on-year to RMB 3.099 billion in 2025. The company ranked first in the number of approved restructuring projects where it acted as independent financial advisor, as well as in the number of projects registered with the securities regulator.
However, the number of A-share IPO pipeline projects stood at only 15, ranking fifth in the industry and placing it in the second tier, far behind top-tier firms such as Guotai Junan Securities, Haitong Securities, and CITIC Securities. This limits the future growth potential of its investment banking business.
Repeated Compliance Violations Highlight Systemic Issues
In 2025, Huatai Securities and its subsidiaries received multiple regulatory warnings and penalties, with violations concentrated in investment banking, over-the-counter options, and employee trading. These incidents reflect significant gaps in compliance management and professional standards.
Investment banking was a major area of non-compliance, with three regulatory warnings issued during the year. In January 2025, the Zhejiang Securities Regulatory Bureau issued a warning to Huatai United Securities for failing to effectively monitor the management and use of funds raised by bond issuers and for not diligently fulfilling ongoing supervision duties.
In June, the Shenzhen Stock Exchange issued a written warning to Huatai United Securities for inadequate verification of goodwill impairment provisions and internal control irregularities related to distributor revenue during the IPO sponsorship process of Jiangsu Changjing Technology.
In December, the Anhui Securities Regulatory Bureau issued warnings to Huatai United Securities and two project sponsors for insufficient professional diligence in verifying revenue recognition and transaction substance in the restructuring project of Anhui Fuhuang Steel Structure, leading to inaccuracies in the independent financial advisor report.
Three penalties within a single year for investment banking violations indicate a failure to fulfill the "gatekeeper" role effectively.
The company also faced penalties for irregularities in its over-the-counter options business, revealing flaws in compliance processes. In June 2025, the China Securities Regulatory Commission ordered Huatai Securities to rectify violations in its OTC options business, which included using underlying assets beyond the margin trading scope, failing to issue written compliance opinions for certain short-term contracts, and having inadequate business risk controls.
Employee misconduct further exposed weaknesses in information security and compliance management. In May 2025, the Jilin Securities Regulatory Bureau penalized a former Huatai employee for illegal trading. The employee used access to the investment research system to obtain non-public information from the proprietary trading department, making profits of RMB 193,900 from trading 58 stocks. The employee was fined three times the illegal gains, totaling RMB 1.07 million.
This case revealed serious deficiencies in employee access control, information barriers, and compliance training, raising concerns about the leakage of sensitive information. Additional issues, such as employees improperly executing trades on behalf of clients and inadequate compliance monitoring at branches, further highlighted weaknesses in the compliance framework.
Internal Control Failures Reveal Systemic Deficiencies
Huatai Securities’ 2025 internal control evaluation report stated that no significant deficiencies were identified and that the company maintained effective internal controls over financial reporting. However, regulatory penalties and business losses indicate multiple material weaknesses and a control system that has failed to function effectively.
Investment banking controls have been repeatedly violated, with quality control and internal review mechanisms proving ineffective. Although the company has established an internal control system for investment banking, with project teams serving as the first line of defense, lapses in due diligence and superficial verification processes have recurred. Three penalties within a short period—related to fund supervision, revenue recognition, and transaction verification—highlight systemic issues.
A key factor is the alignment of interests between project teams and quality control departments, which undermines internal firewalls. Quality control reviews have become procedural rather than substantive, failing to meet regulatory expectations for investment banking professionalism in the context of full registration-based IPOs.
Risk management for complex businesses, such as derivatives and OTC operations, is also weak. The RMB 16.7 billion loss in proprietary derivatives trading in 2025 reflects serious shortcomings in hedging strategies, position limits, and valuation risk controls. The former employee’s illegal trading case further exposed excessive system access rights and inadequate monitoring, allowing prolonged unauthorized access to sensitive information. Information barriers have not been effectively enforced.
In addition, insufficient compliance training, behavioral auditing, and whistleblower mechanisms have failed to prevent misconduct such as unauthorized employee trading and the use of non-public information. The sharp decline in international business revenue also indicates inadequate risk control and compliance integration capabilities for cross-border operations.
In summary, Huatai Securities faced multiple challenges in 2025, including slower growth, cash flow pressure, and business structural imbalances. Regulatory penalties highlighted compliance risks across various areas, while internal control failures and systemic deficiencies further undermined operational stability. Addressing these issues will require a comprehensive effort to optimize the business structure, strengthen compliance, and enhance internal controls.
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