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Guotai Junan International half-yearly profit declines 10.6 pc

Brokerage firm expects upcoming Shenzhen-HK stock connect to bolster future growth after posting better earnings than mainland peers

PUBLISHED : Friday, 19 August, 2016, 9:23pm
UPDATED : Friday, 19 August, 2016, 10:18pm

Guotai Junan International is banking on the upcoming Shenzhen-Hong Kong stock connect to revive its fortunes, after it posted a 10.6 per cent decrease in profit for the first six months of this year.

The offshore arm of the fourth largest brokerage on the mainland posted a better performance for the first six months than its mainland peers amid doubts over the management’s ability to keep the firm on a strong path.

Such doubts arose when its Hong Kong-based chief executive Yim Fung remained incommunicado for a month in late November to assist authorities on the mainland with an ongoing investigation. Yim, however, later clarified that the investigation had nothing to do with him or the company.

Profit attributed to shareholders stood at HK$536.7 million during the first six months, down 10.6 per cent year on year, as income from brokerage activities plunged 51.6 per cent to HK$211.13 million.

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The board proposed an interim dividend of three Hong Kong cents per share.

According to Thomas Wong, chief financial officer, the company’s brokerage and asset management business suffered “due to flagging market performance and a drastic decline in turnover on the Hong Kong stock exchange.”

The gloom in the core sectors was offset by the strong growth in the company’s financing business, he said. Income from loans and financing increased 23.5 per cent year on year to HK$633.14 million.

Felix Luo, an analyst with GF Securities Hong Kong said Guotai Junan International has reported a better performance than most of its peers due to the higher return on equity and a more balanced business portfolio.

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“Commission and margin services account for a huge chunk of Guotai Junan’s business, which in turn boosts its risk management business,” he said ahead of the result announcement.

The company’s parent, Guotai Junan Securities listed in Shanghai is due to announce its first-half earnings on Tuesday.

Yim Fung, chairman and chief executive of Guotai Junan International, said on Friday that the upcoming Shenzhen-Hong Kong stock connect will rejuvenate mid and small caps listed in Hong Kong, and indirectly boost the performance of Guotai Junan International.

The State Council on Tuesday approved the new cross border trading scheme between the stock markets of Shenzhen and Hong Kong, while the Hong Kong Exchanges and Clearing gave indications that it would commence before Christmas.

“We are confident that the stock market would post a better performance in the next six months,” he said.

Hong Kong’s benchmark Hang Seng Index fell by more than 5 per cent in the first six months, while turnover dropped 46 per cent.

Mainland based brokerage companies have seen profit for the first-half plunge by almost 60 per cent on average year on year, according to data from Securities Association of China, mainly due to the high base reached in the first half a year ago, fuelled by a leverage-based bull run on the A-share market.

But a market rout hit the mainland stock market in mid June and wiped out market capitalisation worth trillions US dollars in three weeks. Average daily turnover had since then plunged from the peak of 2 trillion yuan (HK$2.3 trillion) before the rout, and for long hovered below one trillion yuan, dragging the commission income for brokerage firms.

The price to earnings ratio of Guotai Junan International stood at 19.33 when market closed on Thursday, compared with 8.99 for CITIC Securities and 7.99 of Haitong Securities.

Yim’s disappearance in late November saw the company’s shares plunging to HK$2.45, before bouncing back to HK$2.8 on December 23 after he returned.