"Big Banks" Bank of America Securities: The fundamentals of Chinese brokerage stocks are decoupled from stock price performance, looking forward to the introduction of supportive policies

Bank of America Securities published a research report, pointing out that the profit forecasts for Chinese brokerage stocks have been upgraded year-to-date, but both A-shares and H-shares have underperformed the market. The disconnect between corporate fundamentals and stock prices is believed to be influenced by the national team's reduction in holdings and the shadow of potential equity financing.

Considering the strong preliminary performance reported by brokerages for the last quarter and the stable outlook for the first quarter of this year, the bank believes that the fundamentals of Chinese brokerages remain robust. It thinks that the recent stock price performance is mainly driven by capital flows rather than fundamentals. It anticipates that once the government signals a pause in the national team's reduction of holdings and introduces more capital market support policies, including accelerating A-share IPOs, along with continued improvement in first-quarter performance expectations after the Lunar New Year, the valuations of this sector will undergo a strong revaluation.

Relative to A-shares, Bank of America Securities prefers H-shares of brokerages, based on strong growth prospects, potential for increased return on equity, ample capital, and investment theme advantages. It is optimistic about Guotai Haitong (02611.HK), CICC (03908.HK), and GF Securities (01766.HK), all of which are given a "Buy" rating. Considering the valuation after the issuance of convertible bonds, Bank of America Securities also upgraded the rating of HTSC (06886.HK) to "Buy," with a target price of HKD 22.1. The bank expects that the aforementioned brokerages will not need to conduct a new round of equity financing in the next 12 months. Based on preliminary performance and changes in trading income, it only slightly adjusted the profit forecast for Chinese brokerages for the fiscal year 2025 and maintained the ratings and target prices for the covered brokerage stocks