Hong Kong company reporting season

Citic’s net profit down 58 pc on sour stock market sentiment

China’s biggest brokerage sees revenues dented as sentiment hit by mid-2015 market crash

PUBLISHED : Wednesday, 24 August, 2016, 9:17pm
UPDATED : Wednesday, 24 August, 2016, 10:14pm

Citic Securities, China’s largest brokerage, saw net profit tumble by more than half as last year’s mainland stock crash and a short-lived circuit breaker system in January hit market sentiment.

Net profit in the first half fell 58 per cent to 5.24 billion yuan (HK$6.1 billion) from the same period a year earlier.

Total revenue fell 41.6 per cent year-on-year to 18.16 billion yuan, while basic earnings per share were down 62 per cent to 43 fen, according to Citic’s filing to the Shanghai Stock Exchange.

Revenue from the brokerage business fell 46.7 per cent to 5.97 billion yuan. The wealth management operation saw a 6.62 per cent decline in revenue, while in the underwriting business revenue climbed 59.8 per cent.

The result was in line with the company’s own estimate announced at the Shanghai bourse in July, which said unaudited net profit in the first half dropped 57.4 per cent year-on-year to 5.32 billion yuan, with total revenue falling 41.6 per cent.

“Operations of big securities firms like Citic should be slightly better than the overall industry performance,” Wang Xiaojun, an analyst at Cinda Securities said before Citic announced the interim results. “Although the brokerage business remains its major business and was hurt by market sentiment this year, it has advantages in wealth management and investment banking business.”

For the whole year, the mainland securities industry may see a net profit drop of 40 to 50 per cent
Wang Xiaojun, analyst, Cinda Securities

Shares of Citic Securities slid 0.57 per cent to end at HK$17.30 on Wednesday before the results, virtually unchanged since the beginning of the year. In Shanghai, its shares closed down 0.59 per cent to 16.71 yuan.

According to data compiled by the Securities Association of China, 125 mainland brokerage houses saw their total net profit in the first half plunge 59.2 per cent year-on-year to 62.47 billion yuan, as total revenue shrank 52.5 per cent to 157.08 billion yuan. The number of profitable brokers fell to 117 from 120 a year earlier.

In the first six months of this year, China’s CSI 300 Index — which tracks large caps in Shanghai and Shenzhen — slumped 15.5 per cent.

The drop was particularly sharp in the first two months, after securities regulators implemented a circuit-breaker system on January 1 which triggered two trading halts and panic sell-offs. The system was suspended on January 8.

As market sentiment soured, the average daily turnover in Shanghai and Shenzhen narrowed 54.4 per cent in the first half from a year ago, according to a research report by Changjiang Securities.

Cinda’s Wang said: “For the whole year, the mainland securities industry may see a net profit drop of 40 to 50 per cent year-on-year. The numbers in the second half will be less ugly due to the lower base in the second half in 2015.”

In future, China’s brokerage houses may allocate more resources to their investment bank and asset management businesses, which are less exposed to movement and trading volumes in the stock market, Wang said.