Founder: Sector profit expected to rise 20% year on year; leading brokerages to see even better profit growth

Founder released a research report stating that the valuation of the brokerage sector is at a historical bottom, and recommended paying attention to the valuation repair of leading brokerages. Leading brokerages are widening the ROE gap with small and medium-sized brokerages, and attention should be paid to investment opportunities under the divergence between continuous fundamental improvement and stock price performance. Focus on the valuation repair of leading brokerages, with target selection: 1) leading brokerages with high ROE and low PB; 2) local state-owned brokerages with low PB and aspirations to become stronger. Founder's main views are as follows: Core Conclusions It is estimated that the brokerage sector (43 listed brokerages combined) 9M26E attributable net profit yoy +27%, of which 3Q26E single-quarter attributable net profit yoy -9%; most leading brokerages' profit growth is better than the industry. By business segment, investment income is expected to come under year-on-year pressure, while brokerage and margin financing, and investment banking businesses are expected to maintain year-on-year growth. The 9M26E attributable net profit forecasts for some key covered targets are as follows (sorted by year-on-year growth rate): CMSC (15.9 billion/yoy+79%), CICC (10.5 billion/yoy+59%), China Securities Co.,Ltd. (10.8 billion/yoy+53%), GF SEC (16.3 billion/yoy+49%), CITIC SEC (33.3 billion/yoy+44%), Huatai (17.0 billion/yoy+33%), Guotai Haitong (26.1 billion/yoy+18%). (Note: 1) The brokerage sector statistics include 43 directly listed brokerages; 2) Main operating revenue = operating revenue - other business revenue - other income - asset disposal income). Brokerage and Margin Financing Business: 3Q26 market trading volume increased year-on-year and decreased quarter-on-quarter; brokerage and margin financing cumulative values are expected to maintain year-on-year growth 1) Trading volume: 3Q26 market average daily stock and fund turnover 2.77 trillion yuan/yoy+10%/qoq-18%. 2) Margin financing scale: 3Q26 average daily margin financing balance 2.71 trillion yuan/yoy+28%/qoq-4%. 3) New fund issuance: 3Q26 newly issued equity fund shares 137.2 billion shares/yoy34%/qoq-41%. It is estimated that the sector's 9M26E brokerage business/net interest income will increase by +25%/+31% year-on-year respectively. Investment Business: 3Q26 major stock indices came under pressure, bond market rose, and follow-on investment and direct investment businesses drove divergence in investment income 1) Major stock indices all showed declines in the single quarter. In 3Q26, CSI 300 fell 12.49% in the single quarter (cumulative decline 5.88%), Wind All A fell 13.33% in the single quarter (cumulative decline 3.35%), and STAR 50 fell 30.70% in the single quarter (cumulative increase 13.82%). 2) The bond market rose moderately. In 3Q26, ChinaBond Aggregate (net) rose 0.51% in the single quarter (cumulative increase 1.47%). Considering the growth in unrealized gains from brokerages' STAR Market follow-on investment and direct investment, it is estimated that the sector's 9M26E investment business will be +24% year-on-year, of which 3Q26E will be -9% year-on-year. Investment Banking Business: IPO issuance grew rapidly, and debt underwriting scale continued to grow 1) Equity underwriting: based on issuance date statistics, 3Q26 market IPO financing scale 119.6 billion/yoy+215%/qoq+82%, refinancing scale 100.2 billion yuan/yoy-2%/qoq-23%. 2) Bond underwriting: 3Q26 brokerage bond underwriting scale 4.76 trillion yuan/yoy+3/qoq-3%. The sharp increase in IPO scale drove investment banking business revenue growth. It is estimated that the sector's 9M26E investment banking business revenue yoy+29%, of which 3Q26E year-on-year +36%. Asset Management Business: Decline in ETF scale dragged down the growth of equity and mixed fund scale In terms of public fund business, according to AMAC data, at the end of August 2026, public fund scale was 39.6 trillion/yoy+9.3%/+5.1% from the beginning of the year, of which non-money fund scale was 23.3 trillion/yoy+8.8%/+2.8% from the beginning of the year, and equity and mixed fund scale was 9.1 trillion yuan/yoy-6.0%/-6.2% from the beginning of the year. At the end of 3Q26, ETF scale was 4.93 trillion yuan/yoy-12.4%. It is estimated that listed brokerages' 9M26E asset management business revenue will be +26% year-on-year, of which 3Q26E will be +21% year-on-year. Risk warnings: policy implementation falls short of expectations; significant market fluctuations; resident asset migration falls short of expectations.