• Expect registration-based system to be implemented for new main board listings in 2H22F. Policy relaxation to drive sector growth continues
  • ADT/outstanding margin trades to grow by 15%/10% y-o-y in FY22F, backed by accommodative monetary policy 
  • Promising outlook in wealth management with fund-raising market to grow 25% y-o-y driven by growth in IPO and SPO market  
  • Sector trading at an attractive 0.7x FY22F P/BV; Our top picks are CICC and GF

The next major policy deregulation. The sector has benefitted from policy deregulation cycle since FY19 and we expect more to come in FY22F. We expect the long-awaited registration-based system to be implemented on the main board in 2H22F. This will serve as a multi-year catalyst to drive brokers’ investment banking business, given the shortened IPO processing time and ongoing system deleveraging. With another round of RRR cut likely in 1Q22F, this will serve as a short-term catalyst to the sector.

Further upside expected. China A-share ADT has risen 36% y-o-y in FY21 at a 3-year CAGR of 47%. Backed by the accommodative monetary policy, we expect to see another 15% y-o-y growth in FY22F and 10% y-o-y increase in margin trades outstanding. Despite approaching the level in FY15, we believe the growth remains healthy given that ADT and margin trades outstanding-to-total mkt cap remains relatively low. Growth in brokers’ wealth management business will continue to serve as a major earnings driver. 

Fund raising to support IPOs.  The launch of registration-based system and policy direction will encourage growth in the direct financing channel, and this should help drive 25% y-o-y growth in total fund-raising market. Backed by increasing number of overseas companies relisting in the off-shore H-share market, brokers with strong investment banking franchise will continue to stand out. The expiry of the 2-year lock-up period for IPOs will serve as additional earnings driver to brokers. 

Positive sector view remains. With multiple catalysts ahead, we continue favour brokers with a strong investment banking and wealth management franchise. Top top picks are CICC (3908 HK) and GF (1776 HK).