主 要 财 务 指 标 Income 损 益 表 Statement (HKD'000, ( 除 每 股 数 据 except 外, 金 额 for 单 位 per 为 千 share 港 元 ) amount) Year 截 至 12 ended 月 31 日 止 31 年 度 December

Transcription

1 海 通 国 际 [665.HK] ( 中 文 简 要 版 ) 2016 年 6 月 8 日 首 次 覆 盖 并 予 买 入 评 级 : 靠 近 周 期 底 部 的 买 入 机 会 我 们 首 次 覆 盖 海 通 国 际, 并 予 买 入 评 级, 基 于 戈 登 增 长 模 型 的 目 标 价 为 5.65 港 元 (1.34 倍 2016 年 市 净 率 和 倍 2016 年 市 盈 率,Beta 值 为 1.8, 股 权 成 本 为 10.2%, 中 期 净 资 产 收 益 率 为 12.0%) 由 于 海 通 国 际 有 强 大 的 中 资 券 商 背 景, 公 司 将 能 够 受 益 于 中 国 资 本 市 场 的 国 际 化 趋 势 公 司 的 2016 年 市 净 率 为 1.12 倍, 我 们 认 为 公 司 目 前 的 估 值 未 反 映 公 司 的 潜 力 公 司 的 两 个 主 要 催 化 剂 包 括 :(1) 深 港 通 正 式 推 出 ;(2)A 股 被 纳 入 M S C I 新 兴 市 场 指 数 根 据 我 们 目 前 的 预 测, 公 司 的 净 资 产 收 益 率 将 由 2016 年 的 8.7% 回 升 至 2017 年 的 10.7%, 我 们 认 为 这 预 测 存 在 上 调 空 间, 因 为 公 司 于 2013 年 和 2015 年 之 间 的 净 资 产 收 益 率 达 到 12.9%-17.1% 投 资 亮 点 深 港 通 有 望 刺 激 股 市 复 苏 香 港 股 市 今 年 首 五 个 月 的 日 均 成 交 量 降 至 700 亿 港 元, 低 于 去 年 的 逾 1,000 亿 港 元 我 们 认 为, 市 场 对 于 2015 年 第 二 季 牛 市 后 的 交 易 量 走 低 的 预 期, 已 经 反 映 在 海 通 国 际 (2016 倍 市 净 率 为 1.12 倍 ) 的 估 值 上 由 于 年 化 换 手 率 已 没 有 太 大 的 下 行 空 间 ( 目 前 约 为 0.7 倍 ), 因 此 市 场 交 易 量 有 望 在 未 来 几 个 月 公 布 深 港 通 后 得 到 提 振 综 合 融 资 服 务 业 务 有 望 继 续 推 动 杠 杆 该 公 司 新 成 立 (2013) 的 结 构 性 融 资 部 门 在 2015 年 贡 献 了 总 收 入 的 9%, 并 在 某 程 度 上 间 接 带 动 企 业 咨 询 业 务 和 孖 展 融 资 业 务 收 入 分 别 拉 升 104% 和 63% 我 们 预 期, 企 业 并 购 的 大 趋 势 将 会 使 公 司 的 综 合 融 资 服 务 业 务 进 一 步 受 益, 尤 其 是 恒 生 指 数 的 成 分 股 的 平 均 市 盈 率 已 低 至 10.2 倍 我 们 预 计, 公 司 的 净 杠 杆 比 率 将 从 2015 年 的 3.47 倍 增 加 至 2016 年 的 3.82 倍, 虽 然 今 年 大 盘 整 体 的 状 况 仍 较 平 淡 投 资 银 行 业 务 继 续 取 得 市 场 份 额 由 于 公 司 是 海 通 证 券 (6837.HK) 的 唯 一 海 外 上 市 平 台, 因 此 公 司 可 受 益 于 母 公 司 的 资 源 和 在 内 地 的 品 牌 效 应 在 过 去 五 年, 公 司 于 香 港 的 股 票 承 销 市 场 份 额 从 0.1% 上 升 到 3.8%, 这 是 受 益 于 中 国 企 业 逐 渐 主 导 了 港 股 融 资 市 场 今 年 上 半 年 和 下 半 年 的 盈 利 分 布 将 取 得 较 佳 平 衡 公 司 2016 年 上 半 年 的 盈 利 或 会 录 得 较 大 的 同 比 跌 幅, 因 为 2015 年 上 半 年 的 基 数 十 分 高 但 是, 我 们 相 信 2016 下 半 年 的 利 润 增 长 应 会 大 幅 改 善, 这 是 由 于 人 民 币 相 关 的 外 汇 风 险 大 幅 下 降 买 入 收 盘 价 : 4.72 港 元 (2016 年 6 月 7 日 ) 目 标 价 : 5.65 港 元 (+20%) 股 价 表 现 中 国 证 券 业 (HK$) (HK$ million) Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Turnover (RHS) Price (LHS) 来 源 : 彭 博 市 值 亿 美 元 已 发 行 股 数 亿 股 核 数 师 PricewaterhouseCoopers 自 由 流 通 量 37.06% 52 周 交 易 区 间 港 元 三 个 月 日 均 成 交 量 650 万 美 元 主 要 股 东 海 通 证 券 (57.80%) 来 源 : 公 司, 彭 博 Year 截 至 12 ended 月 底 止 31 年 December 度 E 2017E Revenue(HK$ 营 业 收 入 ( 百 万 m) 港 元 ) 1,647 2,713 5,806 5,133 6,098 Net 收 入 income(hk$ 净 额 ( 百 万 港 m) 元 ) 529 1,018 2,510 1,881 2,518 Adjusted 经 调 整 净 利 Net 润 Margin 率 39% 49% 58% 52% 57% Adjusted 经 调 整 每 股 EPS 收 益 (HK ( 港 cents 仙 ) per share): YOY 同 比 变 Change 动 22% 29% 20% -42% 33% PER(x) 市 盈 率 ( 倍 ) PBR(x) 市 净 率 ( 倍 ) ROAE 平 均 净 资 产 收 益 率 12.9% 15.1% 17.1% 8.7% 10.7% ROAA 平 均 资 产 收 益 率 2.4% 2.6% 3.6% 2.0% 2.4% 来 源 : 公 司, 中 国 银 河 国 际 证 券 研 究 部 预 测 吕 宇 研 究 助 理 (852) livylyu@chinastock.com.hk 王 志 文 研 究 部 主 管 (852) cmwong@chinastock.com.hk 1

2 主 要 财 务 指 标 Income 损 益 表 Statement (HKD'000, ( 除 每 股 数 据 except 外, 金 额 for 单 位 per 为 千 share 港 元 ) amount) Year 截 至 12 ended 月 31 日 止 31 年 度 December E 2017E Brokerage 经 纪 业 务 461, ,518 1,031, , ,700 Margin 孖 展 融 资 financing 341, ,776 1,272,095 1,441,416 1,754,255 Corporate 企 业 融 资 finance 167, , , , ,483 Asset 资 产 管 理 management 92, , , , ,178 Leveraged 杠 杆 及 并 购 融 资 and 活 动 acquisition finance 401, , , , ,000 FICC, 买 卖 及 做 trading 市 and market making 183, ,040 1,991,841 1,325,358 1,618,550 Revenue 收 入 1,646,814 2,713,291 5,805,514 5,133,234 6,098,165 Other 其 他 收 入 income 2,807 20,512 9,791 6,000 6,000 Operating 经 营 开 支 Expenses Staff 雇 员 成 本 costs 421, , , , ,700 Commission 客 户 主 任 佣 金 to accounts executives 160, , , , ,134 Depreciation 折 旧 45,113 33,494 32,250 28,325 28,094 Other 其 他 经 营 operating 开 支 expenses 313, , , , ,000 Finance 财 务 成 本 costs 126, ,475 1,036,569 1,178,939 1,337,677 Investments 应 占 以 权 益 法 入 账 gains 的 投 资 ( accounted 亏 损 )/ 利 润 for using the equity method 15,157 33,212 (53,522) (20,000) 20,000 Operating 经 营 利 润 Profit 598,476 1,215,748 2,986,388 2,238,869 2,997,560 Income 所 得 税 开 支 tax expense 68, , , , ,610 Non-controlling 非 控 制 性 权 益 interests 1, Net 收 入 净 income 额 529,152 1,018,269 2,510,052 1,880,650 2,517,951 每 股 收 益 ( 港 元 ) EPS (HK cents per share): 基 本 Basic 稀 释 Diluted 每 股 派 息 ( 港 元 ) DPS (HKD) 派 息 率 Dividend payout ratio 46% 42% 37% 35% 35% 股 息 收 益 率 Dividend Yield 4.0% 5.0% 4.9% 2.6% 3.5% Revenue 收 入 明 细 (%) Breakdown(%) Brokerage 经 纪 业 务 28% 21% 18% 14% 13% Margin 孖 展 融 资 financing 21% 23% 22% 28% 29% Corporate 企 业 融 资 finance 10% 15% 14% 17% 15% Asset 资 产 管 理 management 6% 5% 3% 3% 3% Leveraged 杠 杆 及 并 购 融 资 and 活 动 acquisition finance 24% 16% 9% 12% 13% FICC, 买 卖 及 做 Trading 市 and market making 11% 22% 34% 26% 27% Growth 增 长 率 ( 同 比 Ratio ): YOY: 经 纪 业 务 Brokerage 33% 21% 85% -29% 9% Margin 孖 展 融 资 financing 96% 83% 104% 13% 22% 企 业 融 资 Corporate finance -27% 136% 112% 2% 10% Asset 资 产 管 理 management 21% 34% 20% 15% 16% Leveraged 杠 杆 及 并 购 融 资 and 活 动 acquisition finance 69% 5% 24% 16% 29% FICC, 买 卖 及 做 Trading 市 and market making 62% 222% 237% -33% 22% Total 总 收 入 Revenue 40% 65% 114% -12% 19% Operating 经 营 利 润 profit 77% 103% 146% -25% 34% Net 净 利 润 profit 80% 92% 147% -25% 34% EPS 每 股 收 益 growth 增 长 22% 29% 20% -42% 33% Margins 利 润 率 及 财 务 and 比 率 : Ratios: Adjusted 经 调 整 经 营 利 Operating 润 率 Margin* 44% 58% 68% 62% 68% Adjusted 经 调 整 净 利 润 Net 率 Margin** 39% 49% 58% 52% 57% Effective 实 际 税 率 tax rate 11% 16% 16% 16% 16% Cost-to-income 成 本 收 入 比 ratio 62% 56% 47% 56% 51% Staff 雇 员 成 本 cost-to-income 收 入 比 ratio 26% 20% 16% 18% 16% Average 港 交 所 日 均 成 daily 交 量 ( turnover 百 万 港 元 ) of HKEx (HK$ m) 62,560 69, ,630 72,000 75,000 Margin 孖 展 额 ( 百 financing 万 港 元 ) balance(hk$ m) 7,946 9,627 18,886 28,373 32,118 * 经 调 整 经 营 利 润 率 = 经 营 利 润 /( 收 入 - 佣 金 及 利 息 开 支 ) *Adjusted Operating Margin=Operating profit/(revenue-commission and interest expenses) **Adjusted * 经 调 整 净 利 润 率 Net = 净 利 Margin=Net 润 /( 收 入 - 佣 金 及 profit/(revenue-commission 利 息 开 支 ) and interest expenses) Source: 来 源 : 公 司 Company, 中 国 银 河 国 际 Data, 研 究 部 CGIS 预 测 Research estimates 2

3 主 要 财 务 指 标 资 产 负 债 表 Balance Sheet (HKD'000, ( 除 每 股 数 据 except 外, 金 for 额 per 单 位 share 为 千 港 amount) 元 ) Year 截 至 12 ended 月 31 日 31 止 年 December 度 E 2017E 非 Non-current 流 动 资 产 assets 2,722,899 4,230,761 14,348,605 14,887,577 10,503,984 Financial 指 定 为 按 公 assets 平 值 计 入 designated 损 益 的 财 务 资 产 at fair value through profit or loss - - 5,705,699 5,800,000 - Available-for-sale 可 供 出 售 投 资 investments 728, ,083 6,253,682 6,580,000 7,600,000 Others 其 他 1,994,481 3,759,678 2,389,224 2,507,577 2,903,984 流 Current 动 资 产 assets 26,715,205 43,929,212 77,570,395 85,541,481 97,206,744 Advances 给 予 客 户 的 孖 to 展 customers 融 资 in margin financing 7,938,421 9,619,965 18,879,155 28,366,448 32,111,181 Other 其 他 贷 款 loans 及 垫 款 and advances 1,872,200 1,819,200 3,550,880 5,200,000 6,200,000 Accounts 应 收 账 款 receivable 1,642,922 4,495,624 3,820,611 4,568,578 5,373,255 Financial 按 公 平 值 计 assets 入 损 益 的 at 财 务 fair 资 产 value through profit or loss 1,950,230 9,962,803 18,257,597 20,000,000 23,400,000 Financial 指 定 为 按 公 assets 平 值 计 入 designated 损 益 的 财 务 资 产 at fair value through profit or loss - 2,485,154 6,154,656 5,930,000 7,030,000 代 客 户 持 有 的 现 金 Cash held on behalf of customers 12,053,559 11,668,936 18,265,360 13,582,800 15,435,000 现 金 及 现 金 等 值 物 Cash and cash equivalents 488,021 3,236,317 6,405,963 5,951,865 5,574,655 其 他 Others 769, ,213 2,236,173 1,941,789 2,082,653 总 资 产 Total assets 29,438,104 48,159,973 91,919, ,429, ,710,728 Non-current 非 流 动 负 债 liabilities 1,407,686 6,994,275 14,939,548 15,160,933 10,062,000 Non-convertible 不 可 换 股 债 券 bonds - 4,580,804 9,937,201 9,937,201 9,950,000 Financial 指 定 为 按 公 liabilities 平 值 计 入 损 designated 益 的 财 务 负 债 at fair value through profit or loss - 620,000 4,225,698 4,225,698 - Others 其 他 1,407,686 1,793, , , ,000 Current 流 动 资 产 liabilities 23,110,166 32,569,196 56,150,666 62,767,153 72,959,303 Accounts 应 付 账 款 payable 13,407,180 15,630,644 20,945,837 14,941,080 16,978,500 Financial 按 公 平 值 计 liabilities 入 损 益 的 财 at 务 负 fair 债 value through profit or loss 144, , ,979 1,189,347 1,186,220 Financial 指 定 为 按 公 liabilities 平 值 计 入 损 designated 益 的 财 务 负 债 at fair value through profit or loss 170,553 1,645,886 3,263,051 1,774,302 2,000,000 Loans 贷 款 及 其 and 他 借 other 贷 borrowings 8,977,390 13,931,426 27,153,517 41,027,548 48,000,000 Others 其 他 410,248 1,035,168 3,830,282 3,834,877 4,794,583 Total 总 负 债 liabilities 24,517,852 39,563,471 71,090,214 77,928,086 83,021,303 资 Capital 本 及 储 备 and reserves 4,920,252 8,596,502 20,828,786 22,500,972 24,689,425 Share 股 本 capital 139, , , , ,125 Reserves 储 备 4,627,100 8,039,480 20,088,197 21,638,761 23,716,556 Proposed 拟 派 末 期 股 息 final dividend 153, , , , ,744 Total 总 股 本 equity 4,920,252 8,596,502 20,828,786 22,500,972 24,689,425 Finance 财 务 比 率 : Ratios: PER(x) 市 盈 率 ( 倍 ) PBR(x) 市 净 率 ( 倍 ) Book 每 股 账 value 面 值 ( 港 per 元 ) share(hkd) ROAE 平 均 净 资 产 收 益 率 12.9% 15.1% 17.1% 8.7% 10.7% ROAA 平 均 资 产 收 益 率 2.4% 2.6% 3.6% 2.0% 2.4% Dupont 杜 邦 分 析 法 Analysis: ( 占 资 产 总 额 比 例 ) Brokerage 经 纪 业 务 2.1% 1.4% 1.5% 0.8% 0.8% Margin 孖 展 融 资 financing 1.5% 1.6% 1.8% 1.5% 1.7% Corporate 企 业 融 资 finance 0.8% 1.0% 1.2% 0.9% 0.9% Asset 资 产 管 management 理 0.4% 0.3% 0.2% 0.2% 0.2% Leveraged 杠 杆 及 并 购 融 and 资 活 acquisition 动 finance 1.8% 1.1% 0.7% 0.6% 0.7% FICC, 买 卖 及 trading 做 市 and market making 0.8% 1.5% 2.8% 1.4% 1.5% Revenue 收 入 7.5% 7.0% 8.3% 5.3% 5.8% Operating 经 营 开 支 Expenses -4.8% -4.0% -4.0% -3.0% -2.9% Operating 经 营 利 润 Profit 2.7% 3.1% 4.3% 2.3% 2.9% Income 所 得 税 开 支 tax expense -0.3% -0.5% -0.7% -0.4% -0.5% Net 收 入 income 净 额 2.4% 2.6% 3.6% 2.0% 2.4% Leverage 杠 杆 [ 总 资 产 [Total / 股 本 ] assets/equity] Net 净 杠 leverage 杆 比 率 [( 总 [(Total 资 产 - 应 付 assets-accounts 客 户 帐 款 )/ 股 本 ] payable to clients)/total equity] ROAE 平 均 净 资 产 收 益 率 12.9% 15.1% 17.1% 8.7% 10.7% Source: 来 源 : 公 司 Company, 中 国 银 河 Data, 国 际 研 究 CGIS 部 预 测 Research estimates 3

4 估 值 及 建 议 首 次 覆 盖 并 予 买 入 评 级 我 们 首 次 覆 盖 海 通 国 际 (0665.HK), 评 级 为 买 入, 目 标 价 为 5.65 港 元,2016 年 市 净 率 为 1.34 倍 ( 相 当 于 15.9 倍 2016 年 市 盈 率 ) 虽 然, 我 们 预 计 高 基 数 效 应 将 导 致 公 司 2016 年 每 股 盈 利 同 比 下 跌 43%, 但 是, 我 们 预 计 每 股 收 益 将 2017 年 复 苏 并 增 长 34%, 主 要 受 益 于 各 业 务 线 不 断 扩 张 海 通 国 际 是 香 港 最 大 的 三 家 中 资 券 商 之 一, 该 公 司 拥 有 相 对 平 衡 的 业 务 组 合 在 多 家 上 市 的 中 国 券 商 之 中, 海 通 国 际 的 主 要 业 务 ( 包 括 经 纪 孖 展 融 资 企 业 融 资 交 易 和 做 市 ) 拥 有 领 先 的 排 名 我 们 相 信, 该 公 司 可 以 大 幅 受 惠 于 中 国 资 本 市 场 的 国 际 化 而 且, 在 进 一 步 考 虑 到 公 司 估 值 吸 引 及 主 要 业 务 有 良 好 的 增 长 后, 我 们 认 为 应 该 给 予 该 公 司 买 入 评 级 基 于 1.34 倍 2016 年 市 净 率, 目 标 价 为 5.65 港 元 我 们 采 用 戈 登 增 长 模 型 (( 净 资 产 收 益 率 - 增 长 率 )/( 股 本 成 本 - 增 长 率 )) 作 为 主 要 的 估 值 方 法, 目 标 市 净 率 为 1.34 倍 券 商 的 业 务 性 质 导 致 它 们 的 市 盈 率 很 容 易 受 到 短 期 盈 利 波 动 所 影 响, 所 以 市 净 率 会 更 适 合 我 们 的 目 标 市 净 率 1.34 倍 是 根 据 以 下 参 数 得 出 : ( 一 ) 无 风 险 利 率 为 2.5%( 美 国 10 年 期 国 债 的 7 年 平 均 值 ); ( 二 ) 预 期 市 场 回 报 率 为 6.8%; ( 三 )Beta 值 为 1.8; ( 四 ) 股 本 成 本 为 10.2%( 根 据 以 上 参 数 所 得 出 的 结 果 ); ( 五 ) 增 长 率 为 5%; ( 六 ) 中 期 净 资 产 收 益 率 为 12.0% 至 于 估 值 方 面, 若 根 据 市 场 共 识 预 测, 国 泰 君 安 国 际 (1788.HK) 的 2016 年 市 盈 率 为 倍,2016 年 市 净 率 为 2.14 倍, 而 申 万 宏 源 ( 香 港 )(0218.HK) 的 2016 年 市 盈 率 为 倍,2016 年 市 净 率 为 1.39 倍 以 市 净 率 计, 海 通 国 际 的 估 值 较 国 泰 君 安 国 际 折 让 48%, 并 较 申 万 宏 源 ( 香 港 ) 折 让 19.7% 若 以 市 盈 率 计, 海 通 国 际 也 分 别 较 上 述 两 家 公 司 折 让 23.7% 和 22.7% 鉴 于 公 司 2015 年 的 平 均 净 资 产 收 益 率 和 平 均 资 产 收 益 率 均 高 于 同 业, 我 们 认 为 公 司 的 估 值 仍 然 十 分 吸 引 4

5 图 1: 同 业 估 值 Company 公 司 Market cap PER (x) PBR (x) ROA(%) ROE(%) Dividend yield (%) 股 Ticker 票 代 号 股 Price 价 ( 港 (HK$) 元 ) 市 值 ( 百 万 美 元 ) 市 盈 率 ( 倍 ) 市 净 率 ( 倍 ) 资 产 收 益 率 (%) 净 资 产 收 益 率 (%) 股 息 收 益 率 (%) (US$m) E 2017E E 2017E E 2017E E 2017E E HAITONG 海 通 国 际 INTERNATIONAL SECURI 665 HK Equity , GUOTAI 国 泰 君 JUNAN 安 国 际 INTERNATIONAL 1788 HK Equity , HUARONG 华 融 金 控 INTERNATIONAL FINANC 993 HK Equity , (1.87) SHENWAN 申 万 宏 源 HONGYUAN HK LTD 218 HK Equity FIRST 第 一 上 SHANGHAI 海 INVESTMENTS 227 HK Equity SOUTHWEST 西 证 国 际 证 SECURITIES 券 INTERNA 812 HK Equity 信 达 国 际 CINDA INTERNATIONAL HOLDINGS 111 HK Equity KINGSTON 金 利 丰 金 FINANCIAL 融 GROUP LTD 1031 HK Equity , EMPEROR 英 皇 证 券 CAPITAL GROUP LTD 717 HK Equity BRIGHT 耀 才 证 SMART 券 金 融 SECURITIES AND 1428 HK Equity QUAM 华 富 国 LTD 际 952 HK Equity SUNWAH 新 华 汇 富 KINGSWAY 金 融 CAPITAL HOLD 188 HK Equity Simple 简 单 平 average 均 Weighted 加 权 平 均 average 来 源 : 彭 博, 中 国 银 河 国 际 证 券 研 究 部 预 测 图 2: 中 国 同 业 比 较 Latest Yearly 最 近 年 度 Performance 的 表 现 665 HK Equity 1788 HK Equity 993 HK Equity 218 HK Equity 227 HK Equity 812 HK Equity 111 HK Equity ((By 截 至 2015 Dec 年 31, 12 月 2015) 31 日 ) Haitong Guotai Junan Huarong Shenw an Southw est Cinda 海 通 国 际 国 泰 君 安 国 际 华 融 金 控 申 万 宏 源 First 第 Shanghai 一 上 海 西 证 国 际 证 券 信 达 国 际 International International International Hongyuan HK International International (2015 Jan-Dec) (2015 Jan-Dec) (2015 May-Dec) (2015 Jan-Dec) (2015 Jan-Dec) (2015 Jul-Dec) (2015 Jan-Dec) Total 总 收 Revenue 入 ( 百 万 (HK$m) 港 元 ) 5,815 2, Net 净 利 Profit 润 ((HK$m) 百 万 港 元 ) 2,510 1, (121) 41 Two-year 两 年 平 均 average 资 产 ( 百 assets 万 港 元 (HK$m) ) 70,039 29,667 3,571 6,757 6,537 2,468 1,327 Two-year 两 年 平 均 average 股 本 ( 百 equity 万 港 (HK$m) 元 ) 14,713 7, ,699 3, Net 净 杠 Leverage 杆 率 ROE 净 资 产 收 益 率 17.1% 13.8% 14.0% 10.8% 4.2% -25.9% 5.4% ROA 资 产 收 益 率 3.6% 3.4% 3.9% 2.7% 2.1% -4.9% 3.1% Revenue 收 入 明 细 Breakdown(HKD000 ): (%) Brokerage 经 纪 业 务 1,031, ,945 19, ,880 n.a. 28,474 69,435 Margin 孖 financing 展 融 资 1,272, ,805 8, ,566 n.a. 14,480 12,997 Corporate 企 业 融 finance 资 841, ,447 59, ,206 n.a. 6,883 31,195 Investment 资 产 管 management 理 148,463 53,092-9,519 n.a ,631 Leveraged/structured 杠 杆 及 并 购 融 资 finance 活 动 520, , n.a. - 6,653 FICC, 买 trading 卖 及 做 and 市 market making 1,991, ,106 54,776 12,478 n.a. (36,223) 21,841 Others 其 他 , ,657 Equity&Rights 股 本 及 配 股 : Offering: Number 发 行 宗 数 of issues Volume 发 行 金 额 (mn ( USD) 百 万 美 元 ) 4,046 1, Rank 排 名 (( by 以 volume) 发 行 金 额 计 ) 来 源 : 彭 博, 中 国 银 河 国 际 证 券 研 究 部 5

6 图 3: 过 去 5 年 市 盈 率 /1/2011 3/1/2012 3/1/2013 3/1/2014 3/1/2015 3/1/2016 Rolling 动 态 市 净 率 ( forward 倍 ) PER Rolling 动 态 市 净 率 平 forward 均 值 ( 倍 ) average PER Average PER+1 standard deviation +1 标 准 偏 差 -1 标 准 偏 差 Average PER-1 standard deviation 来 源 : 中 国 银 河 国 际 研 究 部 预 测 图 4: 过 去 5 年 市 净 率 区 间 /1/2011 3/1/2012 3/1/2013 3/1/2014 3/1/2015 3/1/2016 Rolling 动 态 市 净 率 ( forward 倍 ) PBR Rolling 动 态 市 净 率 平 forward 均 值 ( 倍 ) average PBR Average PBR+1 standard deviation +1 标 准 偏 差 -1 标 准 偏 差 Average PBR-1 standard deviation 来 Sources: 源 : 中 国 CGIS 银 河 国 Research 际 研 究 部 预 estimates 测 6

7 主 要 投 资 风 险 整 体 经 济 同 时 面 对 国 内 和 全 球 性 的 风 险, 这 导 致 股 市 成 交 量 自 2015 年 6 月 以 来 大 幅 下 降 如 果 这 情 况 持 续, 将 对 海 通 国 际 的 核 心 经 纪 及 孖 展 融 资 业 务 构 成 负 面 影 响 美 元 升 值 的 周 期 可 能 会 持 续 较 长 时 间, 这 将 导 致 部 分 国 际 投 资 者 关 注 他 们 的 非 美 元 投 资 若 内 地 和 香 港 股 市 的 成 交 量 持 续 走 低, 可 能 会 影 响 投 资 者 对 深 港 通 带 来 的 投 资 机 会 的 兴 趣 投 资 银 行 业 务 和 投 资 管 理 业 务 的 市 场 竞 争 加 剧, 可 能 蚕 食 这 些 业 务 的 收 费 该 公 司 发 展 固 定 收 益 产 品 股 票 衍 生 产 品 和 做 市 业 务 的 往 绩 记 录 较 短, 其 所 涉 及 的 潜 在 风 险 或 高 于 投 资 者 的 预 期 如 果 美 联 储 继 续 加 息, 该 公 司 为 了 保 持 杠 杆 融 资 及 孖 展 融 资 业 务 的 利 差, 将 可 能 需 要 向 客 户 收 取 较 高 的 利 息 而 利 息 上 升 可 能 导 致 孖 展 融 资 和 杠 杆 融 资 业 务 的 需 求 下 降 7

8 June 8, 2016 Haitong International Securities Group Ltd [665.HK] Initiate with BUY: Buying Opportunity Near the Trough of the Cycle We initiate coverage on Haitong International Securities Group Ltd (Haitong International) with a BUY rating and a Gordon Growth Model-based target price of HK$5.65 (1.34x 2016E PBR and 15.94x 2016E PER; beta at 1.8, cost of equity at 10.2%, and medium-term ROE at 12.0%). Backed by its strong Chinese background, Haitong International is well positioned to ride on the trend of the internationalization of China capital markets. At a 2016E PBR of 1.12x, we do not believe the current valuation reflects the Company s potential. The official launch of Shenzhen-Hong Kong Stock Connect and the potential inclusion of A-shares in the MSCI Emerging Markets Index will be the two major catalysts. There is potential upside in our current projection of a ROE recovery from 8.7% in 2016E to 10.7% in 2017E, in our view, given that the Company achieved a ROE of 12.9%-17.1% between 2013 and Investment Highlights SZ-HK Connect to awaken the stock market. Average daily turnover (ADT) of the Hong Kong stock market dropped to ~HK$70bn for 5M16 from >HK$100bn last year. We believe the low expectations of trading volume after the Q bull market is already reflected in the valuation of Haitong International (1.12x 2016E PBR). Since there is not much downside for trading velocity (currently around 0.7x), the expected announcement of SZ-HK Stock Connect in the next few months should bring more vitality to market trading volume. Integrated financing services to continue to boost leverage. The newly built (2013) structured finance department contributed 9% of the total revenue in 2015 and indirectly played a part in boosting revenue from corporate advisory and margin financing by 104% and 63%, respectively. We expect integrated financing services to further benefit from an era of mergers and acquisitions, especially when the average PER of companies on the Heng Seng Index is as low as 10.2x. We expect the Company s net leverage to increase from 3.47x in 2015 to 3.82x in 2016E, although the overall market conditions are lukewarm this year. Investment banking to gain market share. As the only listed overseas platform of Haitong Securities (6837.HK), the Company benefits from both resources and the brand of its parent company in the Mainland. It expanded its market share from 0.1% to 3.8% in Hong Kong for equity underwriting in the past five years as Chinese corporates gradually dominated the Hong Kong equity financing market. More balanced earnings between 1H and 2H this year. We may see a sharp decline in 1H16E earnings on YoY basis because of a very high base in 1H15. But we believe profit growth in 2H16E should be much better, thanks to much lower RMB-related FX risk. Year ended 31 December E 2017E Revenue(HK$ m) 1,647 2,713 5,806 5,133 6,098 Net income(hk$ m) 529 1,018 2,510 1,881 2,518 Adjusted Net Margin 39% 49% 58% 52% 57% Adjusted EPS (HK cents per share): YOY Change 22% 29% 20% -42% 33% PER(x) PBR(x) ROAE 12.9% 15.1% 17.1% 8.7% 10.7% ROAA 2.4% 2.6% 3.6% 2.0% 2.4% Sources: Company, CGIS Research Estimates BUY Close: HK$4.72 (June 7, 2016) Target Price: HK$5.65 (+20%) Price Performance (HK$) Market Cap US$3,217m Shares Outstanding m Auditor PricewaterhouseCoopers Free Float 37.06% 52W range China Securities Sector Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Turnover (RHS) 3M average daily T/O Major Shareholder Sources: Company, Bloomberg HK$ US$6.5m Haitong Securities (57.80%) Livy Lyu Research Assistant (852) livylyu@chinastock.com.hk Wong Chi-man Head of Research (852) Price (LHS) cmwong@chinastock.com.hk (HK$ million) Source: Bloomberg 0 8

9 Key financials Income Statement (HKD'000, except for per share amount) Year ended 31 December E 2017E Brokerage 461, ,518 1,031, , ,700 Margin financing 341, ,776 1,272,095 1,441,416 1,754,255 Corporate finance 167, , , , ,483 Asset management 92, , , , ,178 Leveraged and acquisition finance 401, , , , ,000 FICC, trading and market making 183, ,040 1,991,841 1,325,358 1,618,550 Revenue 1,646,814 2,713,291 5,805,514 5,133,234 6,098,165 Other income 2,807 20,512 9,791 6,000 6,000 Operating Expenses Staff costs 421, , , , ,700 Commission to accounts executives 160, , , , ,134 Depreciation 45,113 33,494 32,250 28,325 28,094 Other operating expenses 313, , , , ,000 Finance costs 126, ,475 1,036,569 1,178,939 1,337,677 Investments gains accounted for using the equity method 15,157 33,212 (53,522) (20,000) 20,000 Operating Profit 598,476 1,215,748 2,986,388 2,238,869 2,997,560 Income tax expense 68, , , , ,610 Non-controlling interests 1, Net income 529,152 1,018,269 2,510,052 1,880,650 2,517,951 EPS (HK cents per share): Basic Diluted DPS (HKD) Dividend payout ratio 46% 42% 37% 35% 35% Dividend Yield 4.0% 5.0% 4.9% 2.6% 3.5% Revenue Breakdown(%) Brokerage 28% 21% 18% 14% 13% Margin financing 21% 23% 22% 28% 29% Corporate finance 10% 15% 14% 17% 15% Asset management 6% 5% 3% 3% 3% Leveraged and acquisition finance 24% 16% 9% 12% 13% FICC, Trading and market making 11% 22% 34% 26% 27% Growth Ratio YOY: Brokerage 33% 21% 85% -29% 9% Margin financing 96% 83% 104% 13% 22% Corporate finance -27% 136% 112% 2% 10% Asset management 21% 34% 20% 15% 16% Leveraged and acquisition finance 69% 5% 24% 16% 29% FICC, Trading and market making 62% 222% 237% -33% 22% Total Revenue 40% 65% 114% -12% 19% Operating profit 77% 103% 146% -25% 34% Net profit 80% 92% 147% -25% 34% EPS growth 22% 29% 20% -42% 33% Margins and Ratios: Adjusted Operating Margin* 44% 58% 68% 62% 68% Adjusted Net Margin** 39% 49% 58% 52% 57% Effective tax rate 11% 16% 16% 16% 16% Cost-to-income ratio 62% 56% 47% 56% 51% Staff cost-to-income ratio 26% 20% 16% 18% 16% Average daily turnover of HKEx (HK$ m) 62,560 69, ,630 72,000 75,000 Margin financing balance(hk$ m) 7,946 9,627 18,886 28,373 32,118 *Adjusted Operating Margin=Operating profit/(revenue-commission and interest expenses) **Adjusted Net Margin=Net profit/(revenue-commission and interest expenses) Source: Company Data, CGIS Research estimates 9

10 Key financials Balance Sheet (HKD'000, except for per share amount) Year ended 31 December E 2017E Non-current assets 2,722,899 4,230,761 14,348,605 14,887,577 10,503,984 Financial assets designated at fair value through profit or loss - - 5,705,699 5,800,000 - Available-for-sale investments 728, ,083 6,253,682 6,580,000 7,600,000 Others 1,994,481 3,759,678 2,389,224 2,507,577 2,903,984 Current assets 26,715,205 43,929,212 77,570,395 85,541,481 97,206,744 Advances to customers in margin financing 7,938,421 9,619,965 18,879,155 28,366,448 32,111,181 Other loans and advances 1,872,200 1,819,200 3,550,880 5,200,000 6,200,000 Accounts receivable 1,642,922 4,495,624 3,820,611 4,568,578 5,373,255 Financial assets at fair value through profit or loss 1,950,230 9,962,803 18,257,597 20,000,000 23,400,000 Financial assets designated at fair value through profit or loss - 2,485,154 6,154,656 5,930,000 7,030,000 Cash held on behalf of customers 12,053,559 11,668,936 18,265,360 13,582,800 15,435,000 Cash and cash equivalents 488,021 3,236,317 6,405,963 5,951,865 5,574,655 Others 769, ,213 2,236,173 1,941,789 2,082,653 Total assets 29,438,104 48,159,973 91,919, ,429, ,710,728 Non-current liabilities 1,407,686 6,994,275 14,939,548 15,160,933 10,062,000 Non-convertible bonds - 4,580,804 9,937,201 9,937,201 9,950,000 Financial liabilities designated at fair value through profit or loss - 620,000 4,225,698 4,225,698 - Others 1,407,686 1,793, , , ,000 Current liabilities 23,110,166 32,569,196 56,150,666 62,767,153 72,959,303 Accounts payable 13,407,180 15,630,644 20,945,837 14,941,080 16,978,500 Financial liabilities at fair value through profit or loss 144, , ,979 1,189,347 1,186,220 Financial liabilities designated at fair value through profit or loss 170,553 1,645,886 3,263,051 1,774,302 2,000,000 Loans and other borrowings 8,977,390 13,931,426 27,153,517 41,027,548 48,000,000 Others 410,248 1,035,168 3,830,282 3,834,877 4,794,583 Total liabilities 24,517,852 39,563,471 71,090,214 77,928,086 83,021,303 Capital and reserves 4,920,252 8,596,502 20,828,786 22,500,972 24,689,425 Share capital 139, , , , ,125 Reserves 4,627,100 8,039,480 20,088,197 21,638,761 23,716,556 Proposed final dividend 153, , , , ,744 Total equity 4,920,252 8,596,502 20,828,786 22,500,972 24,689,425 Finance Ratios: PER(x) PBR(x) Book value per share(hkd) ROAE 12.9% 15.1% 17.1% 8.7% 10.7% ROAA 2.4% 2.6% 3.6% 2.0% 2.4% Dupont Analysis: Brokerage 2.1% 1.4% 1.5% 0.8% 0.8% Margin financing 1.5% 1.6% 1.8% 1.5% 1.7% Corporate finance 0.8% 1.0% 1.2% 0.9% 0.9% Asset management 0.4% 0.3% 0.2% 0.2% 0.2% Leveraged and acquisition finance 1.8% 1.1% 0.7% 0.6% 0.7% FICC, trading and market making 0.8% 1.5% 2.8% 1.4% 1.5% Revenue 7.5% 7.0% 8.3% 5.3% 5.8% Operating Expenses -4.8% -4.0% -4.0% -3.0% -2.9% Operating Profit 2.7% 3.1% 4.3% 2.3% 2.9% Income tax expense -0.3% -0.5% -0.7% -0.4% -0.5% Net income 2.4% 2.6% 3.6% 2.0% 2.4% Leverage [Total assets/equity] Net leverage [(Total assets-accounts payable to clients)/total equity] ROAE 12.9% 15.1% 17.1% 8.7% 10.7% Source: Company Data, CGIS Research estimates 10

11 Valuation and Recommendation Initiating coverage with a BUY rating. We initiate our coverage of Haitong International (0665.HK) with a BUY rating and a HK$5.65 price target, based on 1.34x 2016E PBR (equivalent to 15.9x 2016E PER). Although we expect its 2016E EPS to drop 43% year-on-year (YoY) as a result of a very high base in 1H15, we expect EPS to resume growth in 2017E at 34%, thanks to expansion in various business lines. As one of the top three Chinese securities companies in Hong Kong, Haitong International has a relatively balanced business portfolio, with leading rankings compared with other listed Chinese brokers in its major business lines, including brokerage, margin financing, corporate finance, trading and market making. We believe it is well positioned to enjoy the benefits of the internationalization of China s capital markets. Therefore we believe it deserves a BUY rating for its attractive valuation with meaningful growth in its major business segments. Target price at HK$5.65 based on 1.34x 2016E PBR. We adopt the Gordon Growth Model ((ROE-g)/(COE-g)) as our principal valuation method with a target PBR of 1.34x. Due to the business nature of securities companies, their PER may be easily affected by short-term earnings volatility. Our 1.34x PBR is derived using the following parameters: (a) a risk-free rate of 2.5% (7-year average of US 10-year treasuries); (b) 6.8% expected market return; (c) beta of 1.8; (d) cost of equity at 10.2% (the end result of the parameters above); (e) 5% growth rate; and (f) medium-term ROE of 12.0%. In terms of current valuation, Guotai Junan Interntiaonal (1788.HK) is trading at 17.45x 2016E PER and 2.14x 2016E PBR, and Shenwan Hongyuan HK (0218.HK) is trading at 17.22x 2016E PER and 1.39x 2016E PBR, based on consensus. Haitong International s valuation represents a 48% discount to GTJA International and 19.7% discount to SWHY HK in terms of PBR. Using PER as the benchmark, Haitong International is also trading at a 23.7% and 22.7% discount, respectively. Given that the Company s ROAE and ROAA were both higher than those of its peers in 2015, we believe the Company s valuation is still very attractive. 11

12 Figure 1: Peer valuation Company Ticker Price (HK$) Sources: Bloomberg, CGIS Research estimates Market cap (US$m) PER (x) PBR (x) ROA(%) ROE(%) Dividend yield (%) E 2017E E 2017E E 2017E E 2017E E HAITONG INTERNATIONAL SECURI 665 HK Equity , GUOTAI JUNAN INTERNATIONAL 1788 HK Equity , HUARONG INTERNATIONAL FINANC 993 HK Equity , (1.87) SHENWAN HONGYUAN HK LTD 218 HK Equity FIRST SHANGHAI INVESTMENTS 227 HK Equity SOUTHWEST SECURITIES INTERNA 812 HK Equity CINDA INTERNATIONAL HOLDINGS 111 HK Equity KINGSTON FINANCIAL GROUP LTD 1031 HK Equity , EMPEROR CAPITAL GROUP LTD 717 HK Equity BRIGHT SMART SECURITIES AND 1428 HK Equity QUAM LTD 952 HK Equity SUNWAH KINGSWAY CAPITAL HOLD 188 HK Equity Simple average Weighted average Figure 2: Chinese Peers Comparison Latest Yearly Performance 665 HK Equity 1788 HK Equity 993 HK Equity 218 HK Equity 227 HK Equity 812 HK Equity 111 HK Equity (By Dec 31, 2015) Haitong Guotai Junan Huarong Shenw an Southw est Cinda First Shanghai International International International Hongyuan HK International International (2015 Jan-Dec) (2015 Jan-Dec) (2015 May-Dec) (2015 Jan-Dec) (2015 Jan-Dec) (2015 Jul-Dec) (2015 Jan-Dec) Total Revenue (HK$m) 5,815 2, Net Profit (HK$m) 2,510 1, (121) 41 Two-year average assets (HK$m) 70,039 29,667 3,571 6,757 6,537 2,468 1,327 Two-year average equity (HK$m) 14,713 7, ,699 3, Net Leverage ROE 17.1% 13.8% 14.0% 10.8% 4.2% -25.9% 5.4% ROA 3.6% 3.4% 3.9% 2.7% 2.1% -4.9% 3.1% Revenue Breakdown(HKD000 ): Brokerage 1,031, ,945 19, ,880 n.a. 28,474 69,435 Margin financing 1,272, ,805 8, ,566 n.a. 14,480 12,997 Corporate finance 841, ,447 59, ,206 n.a. 6,883 31,195 Investment management 148,463 53,092-9,519 n.a ,631 Leveraged/structured finance 520, , n.a. - 6,653 FICC, trading and market making 1,991, ,106 54,776 12,478 n.a. (36,223) 21,841 Others , ,657 Equity&Rights Offering: Number of issues Volume (mn USD) 4,046 1, Rank ( by volume) Sources: Bloomberg, CGIS Research 12

13 Figure 3: 5-year PER Band /1/2011 3/1/2012 3/1/2013 3/1/2014 3/1/2015 3/1/2016 Rolling forward PER Average PER+1 standard deviation Rolling forward average PER Average PER-1 standard deviation Sources: CGIS Research estimates Figure 4: 5-year PBR Band /1/2011 3/1/2012 3/1/2013 3/1/2014 3/1/2015 3/1/2016 Rolling forward PBR Average PBR+1 standard deviation Rolling forward average PBR Average PBR-1 standard deviation Sources: CGIS Research estimates 13

14 Investment Thesis Potential of SZ-HK Connect Not Fully Reflected Given the lackluster ~HK$70bn average daily turnover (ADT) of the Hong Kong market so far this year, we believe the current valuation of Haitong International already reflects low expectations of trading volume, based on Figure 8. However, the following catalysts could attract investors attention. Potential for trading velocity to rebound if SZ-HK Stock Connect is launched Market expectations on the announcement of Shenzhen-Hong Kong Stock Connect have been rising recently, triggered by the comments by regulators in the past few weeks. We therefore expect the Stock Connect scheme to be officially announced in the next two to three months and to commence in Q4 2016, as it would take three to four months to prepare according to the management of HKEx (0388.HK). Our estimate of the extra revenue generated through SZ-HK Stock Connect (northbound) to Haitong International is based on historical data from SH-HK Stock Connect. We assume the Shenzhen Component Index ( CH) will be used for the potential eligible stock list for SZ-HK Stock Connect. There are 500 stocks in the index, similar to the number of eligible stocks in SH-HK Stock Connect. Figure 5: Average Daily Turnover of the Hong Kong Stock Market YTD 0.0 Average Daily Turnover of Hong Kong Stock Market (HK$bn) Sources: HKEx, Wind Potential to boost brokerage revenue by >10% on annualized basis According to our simulation, the commencement of SZ-HK Stock Connect could boost Haitong International s brokerage income by 13%, based on historical monthly data. We assume RMB80.8bn monthly SZ-HK northbound trading volume based on the average simulated volume in the past 12 months. Potential upside may be higher than our estimation as the trading volume of SZ-HK Stock Connect (northbound) may be larger due to Shenzhen market s higher exposure to the new economy. 14

15 Figure 6 : Assumptions of the SZ-HK Stock Connect Simulation (1) Since the Company may offer a discounted commission rate in the first few months of SZ-HK Stock Connect, we have not included the potential contribution in our financial model at present. If the official launch of SZ-HK Stock Connect improves market sentiment and attracts more trading volume not just from Mainland investors but also from overseas investors in the Hong Kong market, Haitong International will benefit. Simulated trading A [Trading volume B [Total trading Total trading volume volume through SZ- (RMB bn) through SH-HK volume of northbound A/B of potential SZ-HK HK northbound northbound] eligible stocks] northound stocks based on SH-HK northbound data , % 2, , % 3, , % 3, , % 2, , % 3, , % 5, , % 6, , % 4, , % 3, , % 5, , % 7, , % 9, , % 8, , % 7, , % 5, , % 2, , % 3, , % 4, (from 17 Nov) , % 2, Average (Nov 2014 excluded) , % 4, Source: CGIS Research Estimates Figure 7 : Assumptions of the SZ-HK Stock Connect Simulation (2) Assumptions of the SZ-HK Connect Simulated monthly trading volume through SZ-HK northbound Connect (RMB bn) (12-month average) 80.8 Conservatively assumed 5% market share of Haitong International in SZ-HK Stock Connect northbound 5% Estimated commision rate 0.10% Simulated monthly revenue driven by SZ-HK Stock Connect (RMB m) 8.1 Potential extra contribution of 2016E monthly brokerage revenue to Haitong International 13% Source: CGIS Research Estimates 15

16 Valuation at the Trough of the Big Cycle The expected 2016 ROE of Haitong International is 8.7% according to our projection, a low point in recent years. Since it is a securities company, the PBR of Haitong International is highly correlated with the trading velocity of the Hong Kong stock market. A five-year historical comparison of its valuation and market velocity shows that the valuation of Haitong International is still in the range of its historical bottom of around 1.1x PBR. There is not much downside for the market trading volume, as it is already below 70% in terms of trading velocity. We think there is still an opportunity to invest in Haitong International at the trough of a big cycle, before the potential catalysts materialize. Figure 8: PBR V.S. Market Velocity % 150% 130% 110% 90% 70% 50% 30% PBR of Haitong International Trading velocity of HK market (annualized 20-day moving average)(rhs) Sources: Bloomberg, CGIS Research Figure 9: ROE and Total Equity 30,000 25,000 20,000 15,000 10,000 5, % 17.1% 24, % 15.1% 22,501 20, % 12.9% 12.0% 10.7% 10.0% 8.7% 8.0% 8, % 4, % 2.0% 0.0% E 2017E Total equity (HK$ m) ROAE (RHS) Sources: Company Data, CGIS Research estimates 16

17 Still room to increase leverage We understand investors have concerns about whether Haitong International can continue to increase its leverage, as the lukewarm market may affect demand for margin financing. Overall, we still expect the Company s net leverage to increase from 3.47x in 2015 to 3.82x in 2016E based on the reasons below. Margin financing balance maintained decent growth in 1H16 Although the margin financing business is usually highly correlated with stock market volatility, Haitong International s margin financing balance should see comparatively steady growth, thanks to the integrated services it provides to institutional clients. The Company achieved a 94.3% CAGR in margin interest income and a 62.1% CAGR in margin loan balance between 2013 and In 2013, the Company set up a structured finance department to develop a new capital-based financing business. Through structured financing solutions offered to corporate clients, such as bridge loans, the Company earns the interest rate spread between >10% charged to clients and ~2% from bank syndicated loans. At end-2015, the total margin balance was HK$18.9bn, and it has already exceeded HK$25bn in the first half of this year. We understand some (<30%) of the margin loan balance is driven by cooperation with the structured finance department. Figure 10: Interest Income from Integrated Financing Services (1) Figure 11: Interest Income from Integrated Financing Services (2) Interest income from margin financing (HK$ m) Loans to margin clients (HK$ m, RHS) Sources: Company Data, CGIS Research 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Interest income from leveraged finance (HK$ m) Consultancy and financial advisory fees (HK$ m) Sources: Company Data, CGIS Research Therefore, the leveraged finance and financial advisory businesses both benefit from the integrated services model. Interest income from leveraged and acquisition finance activities surged from HK$237m in 2012 to HK$520m in 2015, and advisory fees rose sharply from HK$36m in 2013 to HK$216m in 2014, the first year after the structured finance department was established. 17

18 Benefiting from the Growing China factor in the Hong Kong Equity Financing Market Market share surged from 0.1% in 2011 to 3.8% in 2015 in Hong Kong equity financing underwriting Haitong International has gone though a rapid expansion in its equity financing business in recent years, thanks to the expanding presence of China corporates in the Hong Kong market. Its market share grew from 0.1% in 2011 to 3.8% in 2015, and has reached 10.5% so far in So far, Haitong International had participated in 14 projects involving equity and rights offers, involving a fundraising total equivalent to US$1,137m, ranking No.1 among its Chinese peers and No.3 among its global peers in the Hong Kong market. Figure 12: Dwindling Deal Size of Hong Kong IPOs Year Number of IPO deals Scale of financing (HK$ bn) As many large SOEs in China have already gone public, the already mature market is seeing more intense competition. The average size of IPO deals fell from HK$5.6bn in 2006 to HK$1.9bn in But Chinese investment banks have benefited from this trend, thanks to their more flexible cost structure compared with foreign investment banks. Average scale of financing (HK$ bn) Sources: HKEx, CGIS Research Since 2012, Chinese companies have captured more than half of the newly raised funds in Hong Kong IPO market. Although more Chinese investment banks are coming south to carve up the cake, Haitong International still enjoys the advantages of a strong track record (including that of its predecessor Taifook Securities) and the corporate resources of its powerful parent company in the Mainland. According to the 2015 annual data, its parent company, Haitong Securities (6837.HK), ranks No.2 among over 100 securities companies in the Mainland in terms of total assets and net assets. Figure 14: Haitong International s Increasing Market Share of Hong Kong Equity Offerings Equity&Rights Offering: YTD Number of issues Volume (m USD) 36 1, ,152 4,045 1,137 Rank ( by volume) Market share 0.1% 2.1% 1.8% 2.0% 3.8% 10.5% Sources: Bloomberg, CGIS Research Figure 13: Chinese Corporates Start to Dominate the Hong Kong IPO Market Chinese Sum of Chinarelated shares H shares IPO Total IPO share Red chips IPO Year scale (HK$ scale (HK$ percentage scale (HK$ mn) IPO scale (HK$ mn) mn) of HK IPO mn) market (HK$ ,176 8, , ,869 50% ,456 6, , ,973 33% ,901 5,903 57, ,931 22% ,823 1,956 65,779 89,818 73% ,699 3,878 93, ,500 56% ,598 8, , ,843 56% ,451 3, , ,328 82% Sources: Wind, CGIS Research 18

19 A Medium-term Story: Opportunities in the Internationalization of China s Capital Markets There has been an obvious path leading to the internationalization of China s capital markets from the first trading through QFII in 2003, and the pilot project of RQFII, to the commencement of Shanghai-Hong Kong Stock Connect in 2014, the upcoming launch of Shenzhen-Hong Kong Stock Connect and even ongoing discussions of Shanghai-London Stock Connect. Although we don t know whether the MSCI will include A-shares in the Emerging Markets Index this year, we believe it is just a matter of time before A-shares are included in the major MSCI indices. The increasing interest in China s capital markets from around the globe is still very clear in the medium term, in our view. As long as the RMB is not fully convertible, Hong Kong will continue to play a key role in the internationalization of China s capital markets. We believe Haitong International is well positioned to benefit from this trend. For instance, in 2015 the A-share trading volume through SH-HK Stock Connect stood at 14% of total trading volume in Haitong International s brokerage business. Expand from a local platform to a regional platform In addition, Haitong International has expanded its regional platform in the past few years to offer a wider range of products to investors and cater for the needs of Chinese corporates which are increasing their investments overseas. The Company has been extending its global footprint since 2014, when it set up its first overseas company in Singapore. So far, the Company has expanded its business network from Hong Kong and Singapore to the United States, the United Kingdom and Japan, through mergers and acquisitions (M&A). In March 2015, the Company completed the acquisition of Japaninvest, a British company providing pan-asia equity research analysis and sales advice services. They have research teams based close to the companies under coverage in Tokyo, Hong Kong and Korea, and equities sales teams in London, New York, San Francisco, Tokyo and Hong Kong. In 2015, the newly acquired entity already generated HK$32m in revenue and HK$6.2m in recurring profit for the Company. In addition, Haitong Bank, newly acquired by its parent company, is a fulllicensed investment bank in Portugal and also has business coverage in Europe, Brazil, India and the United States. We believe the synergy effect should accelerate Haitong International s business development in Europe and the United States. Figure 15: Internationalization Footprint of the Company Subsidiary Hong Kong Beijing, Shanghai Singapore Tokyo London New York *Trading through local exchange members Source: Company Data, CGIS Research Business Coverage Brokerage and Margin Financing; Investment Banking Services Representative Offices Bond Market Making; Asset Management; Trading in Futures* Investment Advisory Investment Advisory (except on pension fund) OTC Dealing in Corporate Equity Securities; Brokerage* 19

20 Trading and Market Making: More Time Needed to Build a Track Record Following the acquisition of Taifook Securities, Haitong International has been gradually diversifying its business from traditional brokerage, margin financing and investment banking to trading and market making. Revenue from trading and market making contributed 22% and 34% of the Company s total revenue in 2014 and 2015, respectively. The Group s Equity Derivatives Department was set up in August 2013 and currently provides ETF market making, securities borrowing and lending services, as well as customized across-asset solutions for institutional and highnet-worth clients. FX risk related to RMB to be much smaller this year As the equity derivatives business and investment-holding business were hit by RMB depreciation in 2H15, the Company has held a neutral position on the RMB this year through matching assets and liabilities and using derivatives when appropriate, so it has largely hedged its forex risk in As investor interest in RQFII is not as strong as that of last year, the Company has prepared other products this year related to the primary market, structured investment, CBBC/warrants, etc. Given its comparatively short track record in this highly volatile business segment, the Company may need more time to build a longer track record to increase its visibility in this business line. Figure16: Trading and Market Making Performance in 2015 ( HKD 000 ) 1H2015 2H2015 Total Net gain on financial assets/liabilities 2,247,679 (522,747) ~Net gain: FICC 470, ,659 ~Net gain: equity derivatives 947,054 (395,187) ~Net gain: investment holdings 830,468 (769,219) Interest income from investment in debt securities 8,537 3,822 Dividend income 37, ,180 Source: Company Data, CGIS Research 20

21 Financial Analysis Since there is unlikely to be a near-term repeat of the market frenzy in 1H15, we expect the Company s revenue and recurring net profit to decline by 12% and 25%, respectively, this year, because of: (1) turnover moves closer to the normalized average daily turnover of around HK$70bn in the past eight years; (2) a lower contribution from equity derivatives and investment holdings this year as a result of weaker market conditions; (3) growing finance costs in the rapid expansion of its capital-based business; (4) a higher staff cost-to-income ratio due to a lower revenue base and the need to recruit talent to further develop its international business and equity derivatives business. Earnings growth to recover in 2017 Nonetheless, we expect the Company to resume profit growth in 2017, as we expect a mild recovery in the markets on the back of potential events like Shenzhen-Hong Kong Stock Connect and A-share inclusion in the MSCI Emerging Markets Index. Steady growth in interest income will also help. Figure 17: Key Assumptions and Projections Year ended 31 December (HKD'000) E 2017E Brokerage 461, ,518 1,031, , ,700 Margin financing 341, ,776 1,272,095 1,441,416 1,754,255 Corporate finance 167, , , , ,483 Asset management 92, , , , ,178 Leveraged and acquisition finance 401, , , , ,000 FICC, trading and market making 183, ,040 1,991,841 1,325,358 1,618,550 Revenue 1,646,814 2,713,291 5,805,514 5,133,234 6,098,165 YOY Change 40% 65% 114% -12% 19% Staff costs 421, , , , ,700 Commission to accounts executives 160, , , , ,134 Finance costs 126, ,475 1,036,569 1,178,939 1,337,677 Operating Profit 598,476 1,215,748 2,986,388 2,238,869 2,997,560 Adjusted Operating Margin* 44% 58% 68% 62% 68% Net income 529,152 1,018,269 2,510,052 1,880,650 2,517,951 Adjusted Net Margin** 39% 49% 58% 52% 57% Adjusted EPS (HK cents per share): YOY Change 22% 29% 20% -42% 33% Average daily turnover of HKEx (HK$ m) 62,560 69, ,630 72,000 75,000 Margin financing balance(hk$ m) 7,946 9,627 18,886 28,373 32,118 Cost-to-income ratio 62% 56% 47% 56% 51% Staff cost-to income ratio 26% 20% 16% 18% 16% *Adjusted Gross Margin=Operating profit/(revenue-commission and interest expenses) **Adjusted Net Margin=Net profit/(revenue-commission and interest expenses) Source: Company Data, CGIS Research estimates 21

22 As the overall valuation of the Hong Kong market remains at a low level, M&A activity should remain vibrant and provide support for the Company s leveraged and structured finance businesses. Haitong International could seize the opportunity in its capital intermediary business and expand its position. We forecast that its 2017 performance will go up by 19% and 34%, respectively, in revenue and net income because of (1) a potential improvement in average daily trading volume to HK$75bn after the announcement of Shenzhen- Hong Kong connect in 2H16; (2) its margin and leveraged finance business maintaining steady growth; and (3) recovering revenue from FICC, trading and market making from a lower base in The integrated financing business should continue to grow but at a slower pace as the margin financing balance is already high. Hence, we expect the margin financing balance to climb by 50% and 13% in 2016 and 2017, respectively, and margin interest income to go up 13% and 22% correspondingly. Figure 18: Margin Financing Estimates 120% 1, % 104% 96% 1,441 80% 83% 1,272 60% 40% % 22% 13% 0% E 2017E Margin interest income(hk$ m) YOY Change 2,000 1,800 1,600 1,400 1,200 1, Figure 19: Trading and Market Making Estimates 2,500 1,992 2,000 1,619 1,500 1,325 1, E 2017E Total revenue of trading and market making (HK$ m) Source: Company Data, CGIS Research estimates Source: Company Data, CGIS Research estimates As for the Company s trading and market-making business, we use separate assumptions for the underlying assets and return rate of the three businesses owing to their different business models. (1) The drop in the FICC yield should be made up partly by a volume increase, while we have a conservative view of the capital gain in FY16/17. (2) Equity derivatives should see smaller growth in 2016 owing to the decrease in investment percentage through RQFII. However, as the newly structured products and a series of CBBC/Warrants are expected to be launched in 2H16, we forecast the recovery will be mainly in (3) As for the investment holdings, the Company has developed PIPEdeal investment since it launched its first private equity fund covering bonds and options of small and mid-cap companies in Hong Kong. We believe the underlying amount should grow in the development period, but with a moderate return rate in the first two years. 22

23 The Company s net leverage ratio dropped from 3.96x in 2014 to 3.47x in 2015, mainly because of a higher capital base from a rights issue. We forecast that net leverage should rebound to above 3.8 with the Company s aggressive development of its capital-based business. There will be a slight drop in net leverage in 2017 mainly for technical reasons, owing to the maturity of a HK$5.7bn total return swap (TRS) in China Grand Auto ( CH). If this factor is excluded, net leverage should stand at around 3.92 in Figure 20: Equity &Leverage , ,000 20, ,000 10,000 5, E 2017E - Total equity (HK$ m) Net leverage [(Total assets-accounts payable to clients)/total equity] Source: Company Data, CGIS Research estimates ROE to recover from 8.7% in 2016E to 10.7% in 2017E The ROE of the Company recorded a historical high of 17.1% in 2015, owing to the extraordinary performance of its brokerage, margin financing and trading and investment, thanks to the bull market in Q According to our forecast, ROE in 2016 could be as low as 8.7% because of weaker market conditions. However, we expect 10.7% ROE in 2017E driven by the factors we discussed earlier related to earnings recovery. Figure 21: ROE&ROA Source: Company Data, CGIS Research estimates 23

24 Company Background Haitong International Securities Group Limited (0665.HK) is the only listed overseas business platform of Haitong Securities Co., Ltd ( SH; 6837.HK), controlled through a wholly-owned subsidiary in Hong Kong, Haitong International Holdings Limited. Its parent company ranks No.2 and No.4 among over 100 securities companies in Mainland China in terms of total assets and yearly revenue respectively, according to the latest annual data. Currently, Haitong Securities indirectly has a 57.8% stake in the Company. The Company was formed in 1996, expanded and back-door listed in 2009 through the purchase of Taifook Securities Group Limited, a major local investment bank founded in 1973, and listed on the Stock Exchange of Hong Kong in Currently, Haitong International provides comprehensive brokerage and margin financing, corporate finance, investment management, fixed income, currency and commodities, as well as structured financing products and services, to institutional clients and individual investors domestically and around the globe. The Group has over 10 branches in Hong Kong and Macau, 2 representative offices in Beijing and Shanghai, and overseas subsidiaries in Singapore, Tokyo, London and New York. Figure 22: Global Footprint of the Company Source: Company data 24