<Result first take>GF (1776 HK, BUY): FY21 net profit posted +8% y-o-y and largely in-line
What’s new:
- GF Securities (1776 HK, BUY) announced FY21 result which posted net profits attributable to shareholders of Rmb10.9bn, up 8% y-o-y due to rising expense, representing 96% and 95% of ours and consensus FY21F earnings estimate.
Our views:
- Representing 46% of total revenue, the rather high capital market participation in FY21 lead fee and commission income to achieve Rmb19.1bn in FY21, up 32% y-o-y. Breaking down by business, brokerage and asset management fee income are the key drivers, posting 20% and 51% y-o-y growth respectively in FY21. GF’s leading position in asset management business caused strong brand effect to help stand out in brokerage sector, echoing our previous view that the holdings of E-Fund & GF Fund would bring strong AM fee income to GF.
- Interest income reached Rmb13.7bn in FY21, up 17% y-o-y, driven by the substantial growth of interest income from margin financing, which recorded a 31% y-o-y growth due to higher market participation.
- Investment banking business missed, revenue down 55% y-o-y to Rmb441.5mn, with total fund-raising volume down 58% y-o-y. With full registration-based listing system expected to be adopted in FY22F, we expect gradual recovery of GF’s investment banking business in FY22F.
- The relatively mild profit growth was primarily due to rising costs from staff costs and distribution expense from asset management business, representing 21% and 66% y-o-y growth respectively. While distribution costs might link to the rise of asset management business, we believe staff costs hike might be a one-off to maintain market competences.
- Risk control indices remain prudent with risk coverage ratio, liquidity ratio and capital leverage ratio stand at 198%, 239%, and 16%, much better than benchmarks. Overall rising earnings drove ROE to reach 11.3% in FY21, 0.3ppt higher than in FY20.
- Maintain BUY with TP of HK$20.0, implying 1.1x of FY22F P/B multiple. GF is one of our top picks in China brokerage sector.
