Western: Securities brokerage and proprietary trading doubled in the first quarter, driving industry performance to a high increase.

Western released a research report stating that the securities industry is expected to achieve high performance by the first quarter of 2025. In detail, the brokerage business, investment banking business, asset management business, proprietary trading business, net interest income, and other business income were 32.736, 6.672, 10.131, 51.210, 7.878, and 5.778 billion yuan respectively, with year-on-year growth rates of +48.7%, +5.4%, -3.3%, +46.6%, +27.2%, and +12.1% respectively. The first quarter market transactions remained strong, with the equity market significantly recovering year-on-year, driving a high increase in brokerage and proprietary investment income. Under the neutral assumption, it is projected that the securities industry will achieve a net profit of 196.1 billion yuan in 2025, a year-on-year increase of +17.2%. Western's main points are as follows: High market performance in the first quarter of 2025 drives high performance in the securities industry On the revenue side, by 25Q1, the combined total operating income and net profit attributable to the parent company of 42 listed securities firms were 1259.30 and 521.83 billion yuan respectively, with year-on-year growth rates of +24.6% and +83.5% (excluding non-recurring gains and losses, the net profit attributable to the parent company of 42 listed securities firms was 432.34 billion yuan, a year-on-year increase of +52%); in detail, brokerage business, investment banking business, asset management business, proprietary trading business, net interest income, and other business income were 327.36, 66.72, 101.31, 512.10, 78.78, and 57.78 billion yuan respectively, with year-on-year growth rates of +48.7%, +5.4%, -3.3%, +46.6%, +27.2%, and +12.1% respectively. Regarding cost, the total management expenses of the 42 listed securities firms increased by +16.5% to 591.96 billion yuan year-on-year, with the management expense ratio decreasing by 8.0 percentage points to 51.7% under the significant expansion of revenue. The high growth in brokerage and proprietary trading year-on-year is the main driver of the industry's performance recovery. 1) Brokerage: In 25Q1, the combined brokerage business income of 42 listed securities firms increased by +48.7% year-on-year, with the average daily trading volume in the market increasing by +71% year-on-year, active trading driving the high increase in brokerage business income. 2) Investment banking: The scale of equity financing in the market increased by +27.2% to 140.7 billion yuan in 25Q1, while the scale of bond underwriting by securities firms increased by +21.2% to 3.23 trillion yuan, and the net investment banking income of 42 listed securities firms increased by +5.4% year-on-year. 3) Asset management: In 25Q1, the combined net asset management income of listed securities firms decreased by -3.3% year-on-year. In the past two years, the asset management industry has seen an expansion in fixed income scale, an increasing trend towards passivity, and a decrease in management fees. It is expected that the future recovery of the equity market will continue to drive the sustained recovery of asset management businesses. 4) Credit: As of the end of 25Q1, the margin trading balance was 1.92 trillion yuan, and the scale of stock pledging continued to decline. 5) Proprietary trading: In 25Q1, the 42 listed securities firms achieved investment business income of 512.10 billion yuan, a year-on-year increase of 46.6%; with a low base, some securities firms saw a high increase in proprietary trading income. As of the end of 25Q1, the combined financial asset size of listed securities firms reached 6.4873 trillion yuan, an increase of +7.5% from the beginning of the year. Under the goal of stable income and smooth fluctuations, securities firms are still increasing their investment in other equity tools. Investment recommendations Under the neutral assumption, it is projected that the securities industry will achieve a net profit of 196.1 billion yuan in 2025, a year-on-year increase of +17.2%. Currently, it is recommended to continue to allocate to the securities sector. Under the uncertainty of Sino-US trade tariffs, domestic demand policies may be strengthened, and market liquidity is expected to remain ample; it is expected that active trading and the upward trend in the capital market in 2025 will continue to drive the recovery of the securities industry's profitability. In addition, Xiangcai Co., Ltd announced its intention to acquire Shanghai DZH Limited through stock exchange, marking a new development in securities mergers and acquisitions, and the main theme of mergers and acquisitions and restructuring transactions will continue to unfold. As of May 1, 2025, the valuation of the securities sector is at the 12.6th percentile since 2012, providing a certain margin of safety. It is recommended to focus on two main themes: one is to recommend Huatai (601688.SH) and East Money Information (300059.SZ) which benefit from investor market entry, have outstanding brokerage advantages, and are expected to deliver performance, and to pay attention to JF SMARTINVEST (09636); the other is the comprehensive head securities firms benefiting from industry supply-side reforms and China Galaxy (601881.SH), CITIC SEC (600030.SH), Guotai Junan (601211.SH) with expectations of mergers and acquisitions, and to focus on Xiangcai Co., Ltd (600095.SH). In addition, it is recommended to pay attention to HKEX (00388) benefiting from the recovery of the Hong Kong stock market and expectations of Chinese concept stocks returning. Risk Warning Significant market fluctuations in equity markets; stricter regulatory cycles; significant provisions for credit impairment losses; significant declines in commission rates.