Principally engaged in securities and futures contracts dealing and broking, proprietary trading, margin and other financing, underwriting, assets management and provision of investment advisory and consultancy services.
Business Review - For the year ended December 31, 2012
1. Securities and futures brokerage business
Retail business grew rapidly. The Company has achieved a market share of 5.45% in terms of total trading volume in the year, representing an increase of 0.88 percentage point over 2011 (4.57%). The Company's market ranking rose to the second place from the fourth. Its market share in terms of stock-based trading volume was 4.54%, increasing by 0.41 percentage point over 2011 (4.13 %) and ranking fourth in the market.
Institutional business service system has been initially established. The Company has strengthened its service efforts for professional institutional investors such as funds and insurance companies, as well as for corporate and high net worth customers, realizing an annual volume block trade of RMB22.3 billion, representing a market share of 8.51% and ranking second in the industry. The Company has also paid close attention to the development of international institutional customers and won 11 new QFII customers throughout the year, gaining 9.4% of the market share for new account opening. Additionally, the Company has reinforced the construction of research teams and was ranked the sixth in 2012 for New Fortune “Best Domestic Research Team”, with its number of listed “Best Analyst” increasing notably on year-on-year basis and its influence in research service market significantly improved.
During the reporting period, the Company sold funds amounting to RMB16.821 billion, recording a sales income of RMB18.23 million. According to the requirements under the Management Regulations on Agency Sales of Financial Products by Securities Companies and the Administrative Approval] Approval of Changes in Business Scope, Registered Capital, Major Articles in the Articles of Association, Company Form and Merger and Division of Securities Companies (《【行政許可事項】證券公司變更業務範圍、註冊資 本、章程重要條款、公司形式及合併、分立審批》) published by CSRC, the Company standardized its overall process, strictly controlled its risks and strived to enhance its efficiencies, in order to apply financial products distribution business. Currently, the Company has been well prepared for its internal reporting of qualification application.
Profitability of its futures brokerage business has further improved. As at the end of 2012, the customer equity generated from Haitong Futures was RMB6.78 billion, representing a 27.6% year-on-year increase and ranking the third in the industry. The network construction has been promoted solidly and 4 branches have been newly set up within the year, making the total number of branches to 28. Achievement has been made in key institutional customer marketing, and a relatively large number of large corporate clients has been secured.
In 2012, the total profits generated from securities and futures brokerage business amounted to RMB1.659 billion, accounting for 40% of the overall total profits.
2. Proprietary trading
By adapting to changing market conditions, the Group has proactively promoted its investment business transformation and diversified its profit models. It has engaged in hedging, the spot-future arbitrage, ETF arbitrage and market-making business for its equity investment in order to reduce impact of trend-based investment on profit, and participated into secondary market exchange with cautious to seize business opportunities from the market vibration pattern. For fixed income investment, it made good use of bond market opportunities and reasonably increased the leverage ratio. Prudent strategy was adopted for its innovative financing business, such as quantifying the investment business and developing a variety of arbitrage methods.
In 2012, the Group increased investment in fixed income business and achieved a respectable return, thus the segment revenue generated from proprietary trading business increased by 51.78% over the same period of last year. Meanwhile, affected by the securities market conditions, prices of equity financial assets decreased, and segment expenses increased by 77.70% due to the large amount of impairment loss in respect of available-for-sale investments. Proprietary trading business recorded total profits of RMB573 million, representing 14% of the total profits of the Group.
3. Asset management business
The asset management subsidiary seized the innovation opportunity and became one of the first securities companies obtaining the qualification for managing insurance fund. It actively launched such innovative products as “cash winner (現金贏家)” series, and bond-classified assets management scheme, and increased 5 collective assets management plans and 15 targeted assets management plans throughout the year, with the scale of collective assets management reaching RMB2.68 billion and targeted asset management reaching RMB30.3 billion.
Public fund management scale of HFT Investment Management Co., Ltd. was RMB34.05 billion, ranking the twenty-sixth in the industry. Its assets management scale of enterprise annuity, separately managed accounts, social security portfolio, etc. totaled RMB30.42 billion. Total public fund management scale of Fullgoal Fund Management Co., Ltd. was RMB75.5 billion, with market ranking the thirteenth.
Investment fund managed for various industries amounted to RMB8.9 billion and the number of new investment projects was 22, with increased investment amount of RMB670 million. The establishments of Haitong Creative Capital Fund Management Co., Ltd. and the Shanghai Cultural Industry Fund it managed have been completed, with RMB1.7 billion initially raised, and have commenced operation.
In 2012, the total profits generated from asset management business amounted to RMB352 million, accounting for 9% of the overall total profits.
4. Investment banking business
Investment banking business made a transition from equity-offering-focused to twopronged approach (equity and debt businesses). The revenue from debt underwriting business increased substantially, effectively offsetting the adverse influence of the downturn of equity financing market. Throughout the year, equity financing business has fulfilled 5 initial public offering (“IPO”) projects and 3 issuance projects, with the amount underwritten of RMB7.85 billion. Great breakthrough has been achieved in debt financing business, and the Company underwrote 38 projects in the year, with the amount underwritten of RMB74 billion. The Company has also obtained the underwriting qualification for short-term financing debt, medium-term note and private debt of SMEs, laying a foundation for further development of debt business. For M&A financing, 5 projects have been completed in the year, with the transaction amount of RMB5.09 billion. New OTC Board business has 4 listed companies completed.
In 2012, segment revenue from investment banking business decreased by 30.24% year on year, due to the impact of various factors such as slowdown of IPO business, and the annual total profits generated from investment banking business amounted to RMB252 million, representing a percentage of 6%.
5. Direct Investment Business
The Group accelerated project investment in direct investment business, and intensified post-investment management. In 2012, the Company increased investment of RMB1.750 billion in Haitong Capital Investment, whose registered capital increased to RMB5.750 billion accordingly, and the financial position of direct investment business was further enhanced. Haitong Capital Investment invested in 23 projects during the year, with a total investment amount of RMB1.21 billion. From its inception, Haitong Capital Investment had invested in 59 projects with a total investment amount of RMB2.72 billion. Meanwhile, the Company strengthened the post-investment management and actively explored various exiting channels such as buyback, M&A. Meanwhile, it actively participated into establishment of new direct investment funds and expanded funds management scale. In 2012, the direct investment business exited from companies and investment projects resulting in an increased dividend income, segment revenue and segment expenses increased significantly over the same period of last year, and realized total profits of RMB145 million, representing a percentage of 4%.
6. Overseas business
Haitong International Holdings realized a net profit of HK$207 million (attributable to the parent company). Market share of brokerage business stocks was 0.52%, ranking the twenty-first among type B securities traders, advancing by 5 places compared with that in 2011. The Company has put great effort in developing its international large fund customers and gained 116 new overseas institutional customers in the year. The total annual amount underwritten for investment banking was HK$7.07 billion, involving 10 underwriting IPO projects. Its market share was 5.4% and ranked the seventh in Hong Kong in terms of amount underwritten and ranking the second in Hong Kong in terms of the number of issuance. Haitong International Holdings was the first assets management company issuing RQFII products successfully in Hong Kong, with amount raised of RMB900 million, and also was the first PRC securities firm in Hong Kong obtaining the qualification for QFII and RQFLP, representing a percentage of 7%.
Business Outlook - For the year ended December 31, 2012
(I) Competition patterns and development trends of the industry
In the coming years, transformation of economic development modes and the economic restructuring process in China will continue, and the securities industry will also see profound reform. The regulatory environment of the securities industry in China will become more and more market-oriented; innovation and reform measures will be continuingly launched; the business modes of securities companies will undergo great reform; the securities industry will be gradually transformed to the capital- and diverse-product-based financial intermediary service mode from the channel-service-based traditional service mode and will become the organizer of the capital market, the manager of investor wealth, thus practically improving the capability of serving the capital market and real economy.
In respect of brokerage, off-site account opening and deregulation of small and micro-sized outlets will further intensify the competition of retail businesses and bring new uncertainties to the trend of commission rates in the industry. Like the ability of customer marketing/services, the ability of cost controls will become a key competition for securities companies with respect to brokerages.
In respect of the investment banking business, equity financing market and other channel businesses suffered some uncertainties due to the market and approval factors. Enterprises will turn to the bond market financing and other non-channel financing methods; the pace of industrial integration and corporate M&A and reorganization are expected to be quickened, which will provide opportunities for securities companies' domestic and overseas M&A financing businesses.
In respect of the asset management business, with the substantial loosening of regulation on securities companies' asset management business, the cooperation channel between the asset management business and other businesses has been basically established, which has provided advantageous conditions for innovation and transformation of the asset management business. The future asset management scale of securities companies is expected to maintain rapid growth.
In respect of the proprietary trading business, overall, the securities companies with leading proprietary fund scale will maintain their advantages in terms of proprietary trading.
In respect of the innovative business, the CSRC incorporated bank financing plans and collective fund trust schemes etc. into the proprietary investment scope of securities companies, which has further removed obstacles for securities companies to develop the over-the-counter trading business, and the securities companies allowed to engage in business pilots are expected to be benefited. With the successive debuts of margin and securities refinancing, collateralized repo and other businesses, the scales of margin financing and securities lending, stock repo and other credit trading businesses are expected to be continuingly expanded in the future, which will bring clearer incremental gains for the large-scale securities companies with abundant capital and solid customer base and further optimize the income structure of their brokerages. The depression of businesses and the restriction on the exit channel in the primary market will have adverse effects on the development of direct investment businesses of securities companies. The simple Pre-IPO business mode will be hard to sustain, and diversity of investment/withdrawal forms as well as deep expansion of the equity investment fund management business will increasingly become a key competitive direction of direct investment businesses of securities companies.
(II) Development strategy of the Company
The Company has accumulated a certain competitive advantage in the past 25 years: firstly, the Company has initially realized the strategic objectives – “restructuring and listing as a group and internationalization” and established the relatively strong capital strength and an diversified business platform; secondly, the Company has owned approximately 60 billion net assets and approximately 4.60 million customers, which has provided abundant capital and solid customer base for its business development; thirdly, brokerage, investment banking, assets management, PE investment and other alternative investments constitute a comprehensive industry chain with strong scale effects and cross-selling potential, which has provided powerful support for its business development; fourthly, margin financing and securities lending, stock repo, over-thecounter trading and other innovative businesses took the lead in the market and the profit mode of the Company has got a prompt transformation; fifthly, the Company has trained and exercised a group of high-quality talents, which has provided a powerful human resources support for its business development.
Under the backdrop of transformation, the overall development strategy of the Company is to reinforce the establishment of such four pillars as the Company's research, talent, IT and risk management and to create Haitong as a domestically first-class and internationally influential financial service group centering on online securities, wealth management securities, SMEs securities and institutional business securities, by taking brokerage, investment banking business, assets management, and other seller and intermediary businesses as the core, capital intermediary business and capital investment business as the two wings, and innovation and internationalization as the drive.
(III) Business plan
In 2013, the Company will focus on the following work to further accelerate innovation and transformation and achieve major financial indicators and business indicators leading in the industry: the first is to speed up development of the innovative business, especially the over-thecounter market business, margin financing and securities lending business and the stock repo trading business, to strive to remain dominated in the industry; the second is to continuously improve the competitiveness of brokerage, investment banking, assets management, investment and other traditional businesses; the third is to strengthen cross-selling and business collaboration and to quicken domestic and overseas resource integration; the fourth is to optimize capital allocation and capital structures and to increase the Company's capital utilization efficiency; the fifth is to further enhance the establishment of such four pillars as talent, risk management, IT and research.
Source: Haitong Securities (06837) Annual Results Announcement
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