Brokerage leader eyes new paths to profit
Citic Securities aims to expand into asset management and build its overseas business to boost profitability.
The move, by the mainland's largest brokerage firm by market share, comes in the face of a sharp slowdown in domestic stock offerings and lukewarm trading sentiment.
"In a move to achieve our medium-term return-on-equity target of 15 per cent to 20 per cent, the company plans to boost its domestic asset management and prime brokerage business in Hong Kong serving global and Chinese hedge funds," Wang Dongming, chairman of the firm, said at a post-results meeting in Hong Kong.
Wang said he expects the size of Citic Securities' prime brokerage business in China, where it engages in securities lending and margin financing, will rise to 20 billion yuan (HK$24.7 billion) next quarter, up from 15.9 billion yuan at the end of last year.
Chief financial officer Ge Xiaobo said the firm was "unsatisfied" with its current return on equity of about 5 per cent, for which he blamed the reduction in listings and trading market performance and its lower-than-average gearing ratio.
The Beijing-based company plans to raise 40 billion yuan through offshore and onshore debt offerings in the next three years. It had total outstanding debt of 13 billion yuan in commercial paper last year, reflecting its determination to expand into new businesses by leveraging up its financial position.
The firm's gearing ratio increased to 35.2 per cent last year from 22.19 per cent in 2011, while return on equity fell to 4.9 per cent from 17 per cent over the period.
Ge said the firm opened a prime brokerage business recently in Hong Kong, which he acknowledged was a highly competitive market dominated by US and European banks. But he said the company could provide a bridge to overseas investors seeking advice on investments in China, while also serving Chinese clients wishing to invest abroad.
Net operating cash flow reverted to an outflow of 17.2 billion yuan last year from an inflow of 122 million yuan in 2011, owing to a sharp decrease in cash and cash equivalents of 7.6 billion yuan.
Net profit fell 66 per cent to 4.24 billion yuan, as the previous year's profit was boosted by the disposal of China Asset Management for 3.2 billion yuan in 2011.