Haitong reaps from rebound in market

Mainland-controlled broker looking to shift into all-round investment banking as it books 44 per cent gain from pickup in stock trading

PUBLISHED : Thursday, 22 August, 2013, 12:00am
UPDATED : Thursday, 22 August, 2013, 2:59am

Haitong International Securities, a unit of the second-biggest brokerage on the mainland, reported a 44 per cent rise in net profit for the first half, partly because of a mild recovery in stock trading in Hong Kong.

The local brokerage, which seeks to become an all-round investment bank, said net profit reached HK$220.3 million in the January-June period, while revenue rose 20 per cent to HK$702.3 million.

"The firm aims to boost the overall leverage ratio to up to five times in two years, compared with two-and-a-half times currently," chief executive Lin Yong said in a post-results briefing.

"Emphasis would be put on the newly set up department of fixed-income, currencies and commodities, the so-called FICC unit, where the firm will use its own balance to finance transactions."

Lin, who has more than 16 years of investment banking experience on the mainland, said the future of brokers depended much on their capital-based businesses and the ability to manage capital, suggesting the conventional broking business was on the brink of being phased out by capital-based trading and securities lending business, as opposed to fee-based services.

It is believed that the company runs a HK$1 billion book under the FICC unit, which represents about 11 per cent of the overall revenue.

In a bid to transform itself into a full-service investment bank, Haitong has increased its leverage, which shows its desire to boost its return on equity to the international level of 15 per cent. The return rose 75 basis points to 5.66 per cent, compared with the first six months of last year, according to the interim results.

Haitong said revenue in corporate finance and advisory services from the choppy equity and fixed-income market dropped 64 per cent to HK$58 million in the first half. Brokerage and retail margin financing business grew 36 per cent to HK$352.3 million.

Earnings per share improved 27 per cent to 18.59 HK cents, compared with 14.61 HK cents a year earlier.

A dividend of 8 HK cents a share will be paid, unchanged from previously.

The broker said it issued HK$776 million worth of convertible bonds, signed a syndicated loan agreement for a revolving loan facility of HK$3 billion and raised HK$1.17 billion through a rights issue this year to strengthen its capital base and help finance its business expansion. In total, it raised HK$5 billion in the three capital raising plans.

In 2009, parent company Haitong Securities reached a buyout agreement with Taifook Securities for HK$1.8 billion from New World Development, making it the first takeover by a mainland brokerage firm in the city.