CICC: Expected to See High Profit Growth for Securities Firms in 1Q26, Leading Brokerages Will Have Competitive Advantage

CICC released a research report recommending to focus on undervalued securities firms that are expected to improve their fundamentals. The firm predicts that with continued high market sentiment in the equity market, securities firms are still expected to achieve steady growth in performance for the whole year. With the sector undervalued, the cost-effectiveness of investments is relatively high. It is recommended for securities selection to return to fundamentals, focusing on securities with strong capabilities in wealth management products, differentiated advantages through three-investment linkage, and large potential for international business growth. In addition, attention should be paid to internet securities firms and financial information data service providers with both performance valuation elasticity and growth prospects. CICC's main points are as follows: Forecasting a 33% year-on-year growth in profits for 2642 listed securities firms in 1Q26 The firm expects that the combined net profit attributable to the parent company for the first quarter of 2026 for the 42 listed securities firms will reach 57.5 billion yuan, a year-on-year increase of 33% (excluding non-recurring gains and losses from Guotai Haitong in 1Q25); adjusted revenue is expected to be 145.6 billion yuan, up by 27% year-on-year. The main driver of performance growth is brokerage business, which contributed 50% to the growth in adjusted revenue, an increase of 48% year-on-year; followed by proprietary trading, which contributed 19% to the growth in adjusted revenue, an increase of 11% year-on-year. Additionally, the firm expects investment banking, asset management, and net interest income to increase by 39%, 27%, and 64% year-on-year respectively, contributing 8%, 9%, and 16% respectively to the growth in adjusted revenue. The firm expects the high growth performance in 1Q26 to be mainly benefited from the high market sentiment in the equity market in January and February and the recovery in the fixed income market 1) The daily average trading volume of stock funds in 1Q26 increased by 75% year-on-year to 3.1 trillion yuan, driving the growth of brokerage business; meanwhile, the overall warmth of the equity market in January and February, with the CSI All A Index rising by 8%, provided opportunities for equity client demand business (especially cross-border northbound revenue swaps) and equity proprietary trading business. The market volatility in March slightly dragged down the overall performance of 1Q, with the cumulative rise and fall of the CSI All A Index in 1Q dropping to -1%. In addition, margin trading, asset management, and investment banking, direct investment, and alternative investments in the primary market also partly benefited from the support of the secondary equity market. 2) The interest rate slightly decreased in 1Q26 with the net price increase of the CSI All Bond Index at 0.25%, driving a slight recovery in fixed income proprietary trading year-on-year. However, considering that some securities firms realized some accumulated floating profits from other debt investments in 1Q25, the firm expects the growth in fixed income proprietary trading to be somewhat weak. The firm expects differentiation in growth rates in 1Q26, with leading securities firms having prominent advantages The firm expects that in 1Q26, leading securities firms will benefit more from the increase in capital business demand brought by the improvement in A-share investment demand, especially the growth in cross-border investment demand from overseas institutions, due to their licensing advantages in client demand business. Furthermore, under the technology theme in the secondary market, they may have more high-quality projects and achieve valuation improvement through direct investment/alternative investments. Risks Decline in market sentiment in the equity market; significant fluctuations in the fixed income market; regulatory policies exceeding expectations.