Principally engaged in securities and futures brokerage, institutional sales and investment research, proprietary trading and other securities trading services, margin financing and securities lending, asset management and wealth management, equity investment management.
3Q results for the 9 months ended 30-09-2019. No dividend was declared. (Announcement Date: 28 Oct 2019)
Business Review - For the six months ended June 30, 2019
Brokerage, sales and trading business
(1) Securities brokerage
Under the guidance of its strategy of “Dual-wheel Drive and Coordinated Development”, the Company’s securities brokerage business accelerated transformation towards wealth management through structural adjustment of the organization, optimization and integration of resources, and the innovative service model, profit-making model, organization model and coordination model of wealth management business. During the Reporting Period, the Company’s securities brokerage business recorded net income of RMB2.373 billion, ranking No. 2 among standalone securities companies according to the unaudited data issued by the SAC. As at the End of the Reporting Period, the securities brokerage business of the Company had a total of 10.8385 million customers, among which 16,500 were organization and product customers. In order to coordinate with the launch of the Science and Technology Innovation Board, the Company consistently improved the construction of the information system while increasing the promotion on the investment education of the Science and Technology Innovation Board and prudently activated the transaction authority in Science and Technology Innovation Board for the customers. As at the End of the Reporting Period, the Company has given access to Science and Technology Innovation Board for over 202,000 customers. The Company’s futures IB business strived to meet customers’ needs for investing in futures market. As at the End of the Reporting Period, a total of 174 securities branches of the Company obtained qualification for futures IB business, resulting in a total of 36,100 customers and total customer equity of RMB1.822 billion as at the End of the Reporting Period. The Company’s businesses including options, Hong Kong Stock Connect and New OTC Board recorded steady development. As at the End of the Reporting Period, the Company’s stock options brokerage business had 28,000 customers, representing a year-on-year increase of 21.74%; the number of accounts of the Company trading through the Hong Kong Stock Connect was 119,000 in total, representing a year-on-year increase of 7.4%; the number of qualified investors with accounts in the Company for trading in New OTC Board amounted to 9,000, representing a year-on-year increase of 3.6%.
The Company further optimized the management model and business processes for financial products agency sales business. The Company continued to implement centralized and unified management of the financial products agency sales business. As coordinated by the product center, a vertically integrated business team from the headquarters to the branch offices and sales department was formed to improve the customer service capability of the Company and promote the transformation of the wealth management of the Company through multi-level capital market participation, systemized product planning which meets the needs of various customers. During the Reporting Period, the Company achieved a net income of RMB258 million in the sales of financial products, ranking third in the industry. Financial products in the total amount of RMB47.266 billion were sold, ranking third in the industry. As at the End of the Reporting Period, the Company’s financial product holdings amounted to RMB117.371 billion, representing a year-on-year increase of 15.96%.
The Company’s private integrated services business developed steadily amidst a volatile market environment. The number of product managers providing PB services increased to 321, representing a year-on-year increase of 29.44%; the number of managers providing comprehensive fund services reached more than 1,800, representing a year-on-year increase of 76.99%. The Company continuously improves its service quality and service efficiency for private equity managers by continuously optimizing service process and strengthening business training. As at the End of the Reporting Period, the Company’s PB system operated 1,085 online products, representing a year-on-year increase of 20.29%. The online product scale was RMB317.149 billion, representing a year-on-year increase of 387.9%. Income from PB business was RMB101 million, representing a year-on-year increase of 32.22%. As at the End of the Reporting Period, the Company had 1,312 online fund service products, of which 177 were newly launched from January to June 2019; the online fund service product scale was RMB62 billion, representing a year-on-year increase of 24%.
(2) Futures brokerage
In the first half of 2019, the internationalization of the futures market continued to advance, the normalized transaction of stock index futures gradually recovered. The transaction volume of the futures market increased steadily, with a year-on-year increase of 23.47% in cumulative turnover. During the Reporting Period, Galaxy Futures focused on expanding the scope of business synergy, further cultivated its industrial customers, focused on strategic instruments such as crude oil and stock index futures, optimized marketing policies, strengthened IT support, promoted iterative upgrades of R&D services, and achieved revenue and other income of RMB918 million, representing an increase of 123.88%; the daily average customer equity was RMB16.355 billion, representing a year-on-year increase of RMB1.242 billion or 8.22%; the cumulative transaction volume was 42 million lots with a cumulative transaction amount totaling RMB3.10 trillion, representing a year-on-year increase of 47.04% and 67.36%, respectively. The trading volume of soybean, white sugar, corn and cotton options of Galaxy Futures ranked Nos. 2, 3, 4 and 3, respectively, in the market. The scale of the asset management business of Galaxy Futures was RMB2.217 billion, with 29 products under its management. Among them, the self-management scale was RMB427 million and has 8 proprietary products.
(3) Margin financing and securities lending and stock pledge
The credit business of the Company adheres to the development principle of “stabilizing scale, adjusting structure, controlling risks and guaranteeing profits”. In respect of the margin financing and securities lending business, the Company adheres to the customer-centered principle and strengthens the application of financial technology, optimizes the customer service system; continuously optimizes its customer structure and business structure, actively cultivates a client base with high investment capability, vigorously develops the securities lending business; strictly controls the concentration of securities lending and manages well the front-end control of the system. As at the End of the Reporting Period, the Company’s margin financing and securities lending balance was RMB48.8 billion, ranking fourth in the industry, with a market share of 5.22%. During the Reporting Period, the Company also earned interest income from margin financing and securities lending of RMB1.71 billion, ranking fourth in the industry. In respect of the stock pledge business, the Company focuses on quality customers, improves project access standard and continuously optimizes the project structure. It further carries out business closed-loop management from the aspects of system construction and standardization process, and improves the continuous management mechanism and internal decision-making process. As at the End of the Reporting Period, the Company’s self-operated stock pledge business balance was RMB31.8 billion with a market share of 6.04%, and its stock pledge interest income was RMB1.17 billion during the Reporting Period, ranking third in the industry.
(4) Asset Management
Since 2019, with the implementation of the new regulations on asset management and affiliated rules, the reconstruction trend of the asset management industry has accelerated. The securities management institutions have focused on business transformation and returned to the original asset management business. According to the statistics of China Securities Investment Fund Association, as at the End of the Reporting Period, the scale of private equity asset management business of securities companies and their subsidiaries was RMB13.59 trillion, which decreased by more than 14.5% from RMB15.89 trillion in the same period of 2018.
Pursuant to the revised regulatory policies, the Company adhered to the strategy of “Dual-wheel Drive and Coordinated Development” and firmly seized the significant development opportunities of wealth management transformation to steadily improve compliance management and risk prevention standards, vigorously develop business synergies and other measures and strive to reduce the impacts from new asset management regulations by strengthening the active management of product innovation and investment management standards. During the Reporting Period, the Company’s asset management business realized revenue and other income of RMB371 million, representing a year-on-year decrease of 18.16%, which was basically in line with the general situation of the industry. As at the End of the Reporting Period, the size of the assets under management of Galaxy Jinhui amounted to RMB240.575 billion, representing a year-on-year decrease of 17.52%, of which the size of assets under active management was RMB84.565 billion, representing a year-on-year increase of 14.46%. The size of collective wealth management products was RMB60.763 billion, representing a year-onyear increase of 42.13%; the size of single (targeted) asset management business was RMB172.786 billion, representing a year-on-year decrease of 28.18%; and the size of asset backed securities (ABS) was RMB7.026 billion, representing a year-on-year decrease of 15.72%.
(ii) Investment Banking Business
During the Reporting Period, the investment banking business of the Company recorded revenue and other income of RMB291 million, representing a year-on-year decrease of 32.39%. According to the statistics from WIND Information, the Company’s aggregate underwriting amount of equities and bonds ranked twentieth in the industry.
1. Equity financing and financial advisory
During the Reporting Period, the size of equity financing in the PRC’s capital market decreased, with an equity financing amount of RMB612.472 billion, representing a decrease of 13.68% as compared with the same period of 2018. Among which, the proceeds from IPOs amounted to RMB60.330 billion, representing a decrease of 34.63% as compared with the same period of last year. During the Reporting Period, the Company focused on promoting investment and financing integration, regional coordinated development integration, customer comprehensive service integration, as well as the integration of domestic and overseas investment and financing business, so as to track closely and engage in the establishment of the relevant policies and standards of the Science and Technology Innovation Board, improve the reserves in equity financing project and improve contracting and undertaking standard and integrated service capability. The Company completed one IPO project, and four equity re-financing projects (including convertible bonds), with an underwriting amount of RMB7.352 billion, and ranked seventeenth in the market. As at the End of the Reporting Period, the Company had 4 IPO projects under review and 3 re-financing projects under review. In addition, the Company’s financial advisory business completed one financing project in relation to merger and acquisitions and reorganization during the Reporting Period.
2. Bond Financing
During the Reporting Period, the total issued amount of credit bonds was RMB6,606.614 billion, representing a year-on-year increase of 38.69%. A total of 6,209 bonds were issued, representing a year-on-year increase of 44.46%. The Company focused on strengthening the design capability of bond financing types, accelerated the progress of poverty alleviation bonds, supported the financing of small and micro enterprises, strengthened the cooperation with large financial organizations, and created sales system at different levels by making use of a large operation networking channel. During the Reporting Period, the Company underwrote 35 bonds with an underwriting amount of RMB30.45 billion and ranked twenty-second in the industry. In particular, the Company served as a lead underwriter to underwrite the “First Tranche of Medium-term Notes of Xinjiang Beixin Road & Bridge Group Co., Ltd. in 2019”, which is the first debt financing instrument of the “One Belt and One Road Initiatives” issued by the enterprise under Xinjiang Production and Construction Corps for the year to provide new momentum for the sustainable development of the region.
3. New OTC Board
During the Reporting Period, the Company completed one recommended listing project on the New OTC Board and two stock placings of listed companies. As at the End of the Reporting Period, the Company supervised the listing of 69 listed companies on the New OTC Board.
(iii) Investment Management Business
(1) Proprietary trading and other securities trading services
During the Reporting Period, the Group recorded revenue and other income of RMB2.652 billion from the proprietary trading and other securities trading services, representing a year-on-year increase of 1,655.50%, which was mainly due to the fact that the loss incurred in the proprietary investment business in the same period of 2018 was reversed through timely optimization of asset allocation of the Company in the current year and the establishment of a sound risk control mechanism for proprietary business.
Promoted by the issuance of local bonds and the impact of financial expenses, the rate of return of the capital market increased in the first quarter of 2019. The prices of equity assets were adjusted significantly due to the marginal relax of monetary policy and a decrease in the rate of return of bonds in the second quarter of 2019. According to ever-changing market condition, during the Reporting Period, the Company’s proprietary equity investment business adjusted the investment strategy and changed the investment mindset to focus on size control for effective control on the risk of stock investment business. The proprietary bond investment business closely traced the economic policies and the change in macro-economy, expanded the size of fixed-income quantitative investment business, interest rate derivatives trading and position scale and attached great attention to the qualification reserve of various innovative businesses. In May 2019, upon strict assessment by China Financial Futures Exchange (“China Financial Futures Exchange”), the Company was approved to become one of the first batch of market makers of national bonds futures business in China Financial Futures Exchange, which generally enhanced the pricing capability of derivatives of the Company and the business level of risk control and IT. During the Reporting Period, the cumulative transaction volume of national bonds futures of the Company was 2.3 times of that in the same period of 2018, and the cumulative transaction volume of interest rate swap was 12 times of that in the same period of 2018. As at the End of the Reporting Period, the number of investors of the dealer-quoted bond repurchase business (the product of “Daily Profits” (天天利)) of the Company in Shanghai made a breakthrough of 518,800, and it ranked first in the market for the seventh consecutive year in outstanding repurchase balance, which amounted to RMB10.860 billion.
The Company’s derivatives business overcame the market fluctuation, continually enhanced the risk hedging capability and designed various risk return products to meet the customized demand of institutional clients and fulfill the traditional strength of the listed fund’s market-making business. During the Reporting Period, more than 30% of the funds consecutively obtained a rating of A or above within the funds of the Company participating the market-making ranking of the SSE.
(2) Private Equity Investment
During the Reporting Period, with the slowdown in economic growth, the investment and financing in private equity market of the PRC was generally under a downward trend, the engagement in investment decreased, and the size of fundraising shrunk more than 50% as compared with the same period of 2018, “Challenges in fundraising and high cost of investment” became the mutual difficulties faced by the PE institutions. As the Company’s private equity investment management platform, Galaxy Capital continued to strengthen the business synergy with other business lines of the Company, actively expanded the channels of fundraising and channels of obtaining projects, and actively promoted the establishment of and investment in private funds by seeking cooperation with local governments, large enterprises and listed companies. During the Reporting Period, Galaxy Capital continued to strengthen its cooperation with Yueke Group and promoted the investment in Galaxy Yueke Fund. During the Reporting Period, Galaxy Capital realized revenue and other income of RMB56 million.
(3) Alternative asset investment
As an alternative asset investment business platform of the Company, Galaxy Yuanhui Investment gradually improved its governance mechanism and risk control system, and established firm footholds in equity investment in the primary market, other equity investments and financial products. Its equity investment targets focused on industrial investments which consist of industries including advanced manufacturing, medical health and consumption upgrade, and its total investment size was RMB2.988 billion. During the Reporting Period, Galaxy Yuanhui Investment further strengthened post-investment management and intensified its coordinated development with the Company’s wealth management business to assist the transformation of the wealth management business of the Company. During the Reporting Period, the registered capital of Galaxy Yuanhui Investment was increased to RMB3 billion from RMB1.5 billion and its revenue and other income amounted to RMB64 million.
(iv) Overseas Business
During the Reporting Period, the stock markets in emerging economies generally rebounded. The Hong Kong stock market rose by 10.44%, the performance of which was better than other major stock markets in the Asia-Pacific region, but still lagged behind the Shanghai and Shenzhen stock markets. Since May 2019, the Hang Seng Index retreated due to geopolitical factors such as the rising of trade protectionism. As at the End of the Reporting Period, the Hang Seng Index closed at 28,543 points. The total market value of the Hong Kong securities market was approximately HK$32.7 trillion, representing a decrease of 1% from the same period of 2018.
During the Reporting Period, the average daily stock trading volume of the Hong Kong securities market was HK$98.0 billion, representing a year-on-year decrease of 22.6%. As affected by the securities market, the commissions and interest income of the brokerage business of Galaxy International Holdings dropped to a certain extent. During the Reporting Period, the investment banking business of Galaxy International Holdings completed the underwriting of two companies listed on the Main Board in Hong Kong. The asset management business further enriched the business product lines. Since 1 April 2019, Galaxy International Holdings started the consolidated management on the CGS-CIMB Securities International Pte. Ltd. (“CGS-CIMB Securities”), a joint venture of the Company. During the Reporting Period, Galaxy International Holdings recorded revenue and other income of RMB598 million and the net profit before tax of RMB40 million.
On 28 June 2019, Galaxy International Holdings completed the closing in respect of the acquisition of 50% of equity interests in the Malaysia securities brokerage business under CIMB Group Sdn. Bhd. (“CIMB Group”). The overseas business layout of the Company was therefore enhanced and its overseas business network covers 8 countries and 1 region, including Singapore, Malaysia, Thailand, Indonesia, India, Korea, the United States, Britain and Hong Kong, the PRC.
Business Outlook - For the six months ended June 30, 2019
In the second half of 2019, facing the development environment mixed with both opportunities and challenges in the securities industry, the Company will adhere to the strategic goal of “building a carrier securities broker and a modern investment bank” and continue with the implementation of the business model of “Dual-wheel Drive and Coordinated Development”, promoting the development of the Company with the work philosophy of “six consolidation, two breakthroughs and one core”.
The first step is to establish the “six consolidations”: in consolidating the development of credit business, the Company will adhere to “stabilizing scale, adjusting structure, protecting revenue, and controlling risks”; in the consolidation of the development of brokerage business, the Company will achieve “steady progress”. “Steady” refers to preventing oversold. “Progress” is to transform into wealth management as soon as possible on the basis of “+Internet” and the development of professional institutional transactions. In consolidating the development of investment banking business, the Company will continue to establish an investment and financing business system and promote the “four integrations” (integration of investment and financing, integration of regional coordinated development, integration of customer services, integration of domestic and foreign investment and financing businesses) and achieve an innovative development on the basis of adhering to the goal of building a “service-oriented investment bank” and sticking to the “Four Principles” and creating “six major service chains”. In consolidating the development of asset management business, the Company will enhance its self-management capabilities, strengthen the coordinated development with the brokerage business, and actively carry out the financial stress relief business. In consolidating the development of investment business, the Company will strictly control the scale of equity investment and relevant risks and vigorously develop sales transactions, capital intermediation, large alternative investment business and optimize the alignment of risk control capability and investment scale, and market sensitivity will be enhanced. In consolidating the development of research business, the coordination method will be innovated, and the coordination with other business lines will be strengthened through “establishment of brands” and “cultivation of talents”, and it will also achieve macro research dynamics, industry research on commercialisation of products and construction of stock pool and product pool.
The second step is to achieve “two breakthroughs”: in respect of the breakthrough in management of subsidiaries, the Company will adhere to the principle of “one company, one policy” to develop management and supporting programs in different categories; in respect of the breakthrough in international business, the Company will strive to overcome the pressure from the intensification of international competition and the growing protectionism in investment and trade, take advantage of the strength of outlets in Southeast Asia to establish an organizational system covering Asia with Southeast Asia as the center while paying attention to the Russian and African capital markets. At the same time, the Company will establish an international business system with the local business as its basis and cross-border business as its core to upgrade its capability of serving the national strategies such as “One Belt and One Road Initiatives”, Guangdong- Hong Kong-Macao Greater Bay Area, Hainan Free Trade Region and the strategies of “bringing in” and “going global” for corporations.
The last step is to focus on “one core”, so that the Company will strive to achieve rapid development to further strengthen its market competitiveness.
Source: China Galaxy Sec (06881) Interim Results Announcement