Western Securities(SZ:002673)2021-04-20 16:00Important Notice, Table of Contents, and Definitions The company's board of directors, supervisory board, and senior management guarantee the annual report's content is true, accurate, and complete, free from misrepresentation or material omissions - The company's 2020 profit distribution plan is to distribute a cash dividend of RMB 0.76 (tax inclusive) per 10 shares based on the total share capital of 4,469,581,705 shares as of December 31, 2020, totaling RMB 339,688,209.58. No bonus shares will be issued, nor will capital reserves be converted into share capital this year3 - The company's annual financial report was audited by ShineWing Certified Public Accountants (Special General Partnership) and received a standard unqualified audit opinion3 Company Profile and Key Financial Indicators Company Basic Information Western Securities Co., Ltd. (stock code: 002673) is a national comprehensive securities firm listed on the Shenzhen Stock Exchange, with a registered capital of RMB 4.47 billion and net capital of RMB 23.27 billion - The company's controlling shareholder changed to Shaanxi Investment Group Co., Ltd. in August 2019, with no change in the ultimate controlling party920 - As of the end of the reporting period, the company had 102 securities branches and 9 important domestic branches nationwide2422 - The company owns four controlled subsidiaries: Western Futures Co., Ltd. (100%), Western Lead Fund Management Co., Ltd. (51%), Western Advantage Capital Investment Co., Ltd. (100%), and Western Securities Investment (Xi'an) Co., Ltd. (100%)23 Key Financial and Regulatory Indicators In 2020, the company achieved significant performance growth, with operating revenue increasing by 40.85% to RMB 5.18 billion and net profit attributable to shareholders increasing by 83.07% to RMB 1.12 billion 2020 Key Financial Data (Consolidated) | Indicator | 2020 | 2019 | YoY Change | | :--- | :--- | :--- | :--- | | Operating Revenue (RMB) | 5,184,163,900.03 | 3,680,544,587.40 | 40.85% | | Net Profit Attributable to Shareholders (RMB) | 1,117,003,407.01 | 610,163,902.78 | 83.07% | | Basic Earnings Per Share (RMB/share) | 0.32 | 0.17 | 88.24% | | Weighted Average Return on Net Assets | 6.18% | 3.50% | Increased by 2.68 percentage points | | Total Assets (RMB) | 63,862,883,987.81 | 48,598,499,333.65 | 31.41% | | Net Assets Attributable to Shareholders (RMB) | 26,016,145,400.03 | 17,658,865,653.66 | 47.33% | Parent Company Core Risk Control Indicators | Indicator | End of Reporting Period | End of Previous Year | Change | | :--- | :--- | :--- | :--- | | Net Capital (RMB) | 23,272,965,942.45 | 15,196,154,370.18 | 53.15% | | Risk Coverage Ratio | 443.14% | 317.03% | Increased by 126.11 percentage points | | Capital Leverage Ratio | 47.15% | 42.55% | Increased by 4.60 percentage points | | Liquidity Coverage Ratio | 444.00% | 224.41% | Increased by 219.59 percentage points | | Net Stable Funding Ratio | 290.22% | 178.34% | Increased by 111.88 percentage points | - The company's regulatory rating has continuously improved over the past three years, reaching Class A, Level A in 2020, a significant improvement from Class B, Level B in 2019 and Class B, Level BB in 201835 Company Business Overview Main Businesses, Operating Model, and Core Competencies The company's business is divided into six major segments, transitioning from a traditional channel-driven model to a capital and expertise-driven one, supported by strong shareholder backing and a comprehensive financial service platform - The company categorizes its existing businesses into six major segments: wealth management, proprietary investment, investment banking, credit business, asset management, and research consulting, to adapt to industry trends and define profit growth paths54 - The company's core competencies include: - Shareholder Support: Controlling shareholder Shaanxi Investment Group provides strategic support and capital assurance - Governance Structure: A sound corporate governance and efficient internal decision-making system - Regional Advantage: Deep roots in western China, with a leading market position in Shaanxi Province - Integrated Platform: Capability to provide full-chain, one-stop integrated financial services - Strategic Planning: Clear strategic goals and market-oriented assessment mechanisms - Compliance and Risk Control: A robust compliance and risk control system and stable information systems5758596061 Significant Changes in Major Assets The company's major assets experienced significant changes, with cash and equivalents increasing by 74.96% and receivables by 164.43%, while buy-back financial assets and debt investments decreased due to risk reduction Explanation of Significant Changes in Major Assets | Major Asset | Change (%) | Explanation of Significant Change | | :--- | :--- | :--- | | Cash and Bank Balances | 74.96% | Primarily due to increased funds raised from non-public stock offerings and bond issuances this year | | Funds Lent | 40.15% | Due to increased scale of financing business at year-end | | Accounts Receivable | 164.43% | Primarily due to increased securities clearing receivables at year-end | | Financial Assets Purchased Under Resale Agreements | -44.93% | Primarily due to reduced scale of stock pledge repurchase business and impairment provisions | | Debt Investments | -80.17% | Due to reduced scale of bond investments at year-end | | Construction in Progress | 55.45% | Primarily due to increased office building construction projects | Management Discussion and Analysis Operating Overview In 2020, the company achieved rapid performance growth, with operating revenue increasing by 40.85% to RMB 5.18 billion and net profit by 83.73% to RMB 1.13 billion, significantly outperforming industry averages - In 2020, the company's performance grew significantly, with consolidated operating revenue reaching RMB 5.18 billion, a 40.85% year-on-year increase, and net profit reaching RMB 1.13 billion, an 83.73% year-on-year increase, with key operating indicators significantly exceeding industry averages64 - The company completed a non-public offering of A-shares in 2020, raising a total of RMB 7.5 billion to enhance its capital strength, risk resistance, and core competitiveness62 Analysis of Main Businesses In 2020, all main business segments developed well, with wealth management and investment banking showing strong growth, while asset management underwent transformation 2020 Operating Revenue Composition (Consolidated) | Business Category | Amount (RMB) | Proportion of Operating Revenue | YoY Change | | :--- | :--- | :--- | :--- | | Net Fee and Commission Income | 1,816,536,623.38 | 35.04% | 44.32% | | Brokerage Business | 1,036,978,206.13 | 20.00% | 57.43% | | Investment Banking Business | 529,377,541.89 | 10.21% | 66.72% | | Asset Management Business | 12,425,572.52 | 0.24% | -44.40% | | Net Interest Income | 248,751,999.74 | 4.80% | 10.51% | | Investment Income | 1,555,235,430.72 | 30.00% | 4.90% | | Gains/Losses from Changes in Fair Value | 211,401,901.73 | 4.08% | 32.09% | | Other Business Income | 1,309,653,600.76 | 25.26% | 150.59% | - Credit impairment losses significantly decreased by 60.25% year-on-year, primarily due to reduced impairment losses from stock pledge business, positively contributing to profit growth6970 - The investment banking segment achieved operating revenue of RMB 518 million, a 71.50% year-on-year increase. In equity-related businesses, the company underwrote and sponsored 8 IPO projects, marking the best performance in the company's investment banking history80 Analysis of Assets and Liabilities As of year-end 2020, total assets reached RMB 63.86 billion, with a 31.41% increase, while total liabilities grew by 22.34% to RMB 37.75 billion, reflecting strong liquidity and a reasonable debt structure Major Balance Sheet Item Changes | Item | 2020 Year-end (RMB) | 2019 Year-end (RMB) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | 63,862,883,987.81 | 48,598,499,333.65 | 31.41% | | Cash and Bank Balances | 21,125,476,461.86 | 12,074,739,149.97 | 74.96% | | Trading Financial Assets | 27,946,573,750.05 | 23,611,853,750.30 | 18.36% | | Funds Lent | 6,436,584,433.54 | 4,592,771,030.85 | 40.15% | | Total Liabilities | 37,754,888,216.16 | 30,861,813,589.80 | 22.34% | | Financial Assets Sold Under Repurchase Agreements | 12,305,344,624.31 | 11,836,826,524.89 | 3.96% | | Client Funds Held on Behalf of Clients | 13,578,964,783.11 | 12,093,603,887.85 | 12.28% | | Bonds Payable | 4,031,848,110.76 | 2,299,073,939.48 | 75.37% | | Short-term Financing Payables | 3,011,736,986.30 | 0.00 | Not applicable | - The company's financing channels include debt financing (bond repurchase, interbank borrowing, corporate bond issuance) and equity financing. As of year-end 2020, excluding client funds held on behalf of clients, total liabilities were RMB 24.18 billion, a 28.81% year-on-year increase99100 Analysis of Major Controlled and Invested Companies Subsidiary performance varied, with Western Futures and Western Lead Fund showing strong growth, Western Securities Investment achieving a good start with STAR Market follow-on investments, while Western Advantage Capital's business slowed Major Controlled and Invested Companies' 2020 Operating Performance | Company Name | Net Assets (RMB) | Operating Revenue (RMB) | Net Profit (RMB) | | :--- | :--- | :--- | :--- | | Western Futures Co., Ltd. | 531,698,773.18 | 1,442,340,130.49 | 29,274,243.31 | | Western Advantage Capital Investment Co., Ltd. | 289,481,571.04 | -60,818,449.47 | -56,994,742.24 | | Western Securities Investment (Xi'an) Co., Ltd. | 423,747,058.70 | 34,178,261.74 | 23,387,586.15 | | Western Lead Fund Management Co., Ltd. | 187,449,738.04 | 278,298,183.16 | 29,454,704.38 | Future Development Outlook and Risks The company aims to become a leading listed brokerage firm by focusing on customer-centricity, strengthening asset-liability management, advancing financial technology, and exploring international development, while actively managing various risks - The company's future development strategies include: - Adhering to the Party Committee's leadership - Providing full-lifecycle financial services - Strengthening asset-liability management - Promoting client structure upgrade - Enhancing financial technology leadership - Deepening compliance and risk control for synergistic efficiency - Exploring international development129130131132133134135 - The company faces major risk factors including policy risk, market risk, credit risk, liquidity risk, operational risk, compliance risk, innovation business risk, talent loss risk, goodwill impairment risk, and reputation risk138139140141143144145146147148149 Significant Matters Profit Distribution The company adheres to its cash dividend policy, proposing a 2020 dividend of RMB 0.76 per 10 shares, totaling RMB 340 million, representing 30.41% of net profit attributable to shareholders Cash Dividend Distribution of Common Shares in the Last Three Years | Dividend Year | Dividend per 10 Shares (RMB) (Tax Inclusive) | Cash Dividend Amount (RMB) (Tax Inclusive) | Ratio to Net Profit Attributable to Shareholders | | :--- | :--- | :--- | :--- | | 2020 | 0.76 | 339,688,209.58 | 30.41% | | 2019 | 0.63 | 220,615,905.51 | 36.16% | | 2018 | 0.58 | 203,106,706.66 | 101.33% | Major Litigation and Arbitration The company is involved in multiple major lawsuits, primarily related to defaults in stock pledge repurchase business and as lead underwriter for '16 Shengyun 01' corporate bonds, actively pursuing legal remedies - Lawsuits with stock pledge business clients such as Jia Yueting, Jia Yuemin, and Liu Hong have reached settlement and entered enforcement procedures, but some cases have been terminated due to the absence of executable assets from the defendants179180 - As the lead underwriter for the '16 Shengyun 01' corporate bond, the company faces multiple lawsuits from investors seeking joint liability for compensation, with related cases still under trial323 Significant Post-Balance Sheet Events Post-reporting period, the company completed a RMB 7.5 billion non-public A-share offering, recognized RMB 122 million in asset impairment provisions, and saw changes in senior management - The company's non-public offering of 967,741,935 A-shares successfully listed, raising a total of RMB 7.5 billion, increasing total share capital to 4,469,581,705 shares after issuance206 - In the fourth quarter of 2020, the company recognized RMB 122 million in various asset impairment provisions, primarily related to pledged shares of 'LeTV.com', 'Kingold Jewelry', and '17 Yinji Entertainment CP001' among other financial assets207 - Changes occurred in the company's senior management, with former General Manager Mr. He Fang resigning and the Board of Directors appointing Mr. Qi Bing as the new General Manager208 Share Changes and Shareholder Information Share Changes Due to a non-public A-share offering, the company's total share capital increased from 3.50 billion shares to 4.47 billion shares, with new shares being restricted and listed in January 2021 - Due to a non-public offering of A-shares, the company's total share capital increased by 967,741,935 shares to 4,469,581,705 shares225226 Shareholders and Ultimate Controlling Party As of year-end 2020, the company had 183,981 shareholders, with Shaanxi Investment Group Co., Ltd. as the controlling shareholder and ultimate controlling party, holding 27.45% of shares Top Ten Shareholders' Shareholding (As of Year-end 2020) | Shareholder Name | Shareholder Nature | Shareholding Ratio (%) | Number of Shares Held (shares) | | :--- | :--- | :--- | :--- | | Shaanxi Investment Group Co., Ltd. | State-owned Legal Person | 27.45% | 961,370,818 | | Shanghai Chengtou Holding Co., Ltd. | State-owned Legal Person | 13.09% | 458,496,467 | | Western Trust Co., Ltd. | State-owned Legal Person | 9.79% | 342,775,944 | | Beijing Yuanda Huachuang Investment Co., Ltd. | Domestic General Legal Person | 3.37% | 117,894,200 | | Central Huijin Asset Management Co., Ltd. | State-owned Legal Person | 1.75% | 61,178,040 | - Controlling shareholder Shaanxi Investment Group Co., Ltd. also holds 57.78% equity in Western Trust Co., Ltd., the third largest shareholder, constituting an affiliated relationship and concerted action236 Directors, Supervisors, Senior Management, and Employees Changes in Directors, Supervisors, Senior Management, and Remuneration Senior management changes occurred with Mr. Qi Bing appointed as General Manager, while the company's workforce is young and highly educated, with over 85% holding bachelor's degrees or higher - Post-reporting period, General Manager He Fang resigned and was succeeded by Qi Bing; Qi Bing's former roles as Compliance Director and Chief Risk Officer were taken over by Chen Wei; the company also appointed Zhu Song as a new Deputy General Manager258 Employee Structure | Item | Category | Number of People | Proportion | | :--- | :--- | :--- | :--- | | Age Distribution | 35 years old and below | 1455 | 52.43% | | | 36 to 50 years old | 1150 | 41.45% | | | 51 years old and above | 170 | 6.12% | | Education Level | Master's degree and above | 811 | 29.22% | | | Bachelor's degree | 1565 | 56.40% | | | Junior college and below | 399 | 14.38% | Corporate Governance Corporate Governance and Internal Control The company maintains a robust corporate governance structure and internal control system, operating in compliance with regulations, with no significant internal control deficiencies identified - The company has established a corporate governance structure comprising the shareholders' meeting, board of directors, supervisory board, and management, with clear responsibilities and standardized operations. During the reporting period, 3 shareholders' meetings, 10 board meetings, and 6 supervisory board meetings were held270 - The company has established a comprehensive compliance management organizational system, ensuring compliance management covers all business departments, branches, subsidiaries, and all staff293 - According to the company's internal control evaluation report, no material weaknesses or significant deficiencies in internal control were identified during the reporting period. The accounting firm issued a standard unqualified attestation report on internal control303307 Corporate Bonds Information Overview of Corporate Bonds and Debt Repayment Capability The company issued RMB 7 billion in new bonds, enhancing its capital structure and improving debt repayment capability, with all maturing bonds repaid on time Corporate Bonds Issued During the Reporting Period | Bond Name | Bond Code | Issue Date | Maturity Date | Bond Balance (RMB 100 million) | Interest Rate | | :--- | :--- | :--- | :--- | :--- | :--- | | 20 Western 01 | 149176 | 2020-7-27 | 2023-7-27 | 20.00 | 3.77% | | 20 Western 02 | 149216 | 2020-8-28 | 2022-8-28 | 20.00 | 3.68% | | 20 Western D1 | 117599 | 2020-11-27 | 2021-11-27 | 30.00 | 4.20% | Key Debt Repayment Capability Indicators | Indicator | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Asset-Liability Ratio | 48.08% | 51.41% | Decreased by 3.33 percentage points | | EBITDA to Total Debt Ratio | 9.79% | 8.57% | Increased by 1.22 percentage points | | Interest Coverage Ratio | 3.88 | 2.29 | 69.43% | Financial Report Audit Report ShineWing Certified Public Accountants issued a standard unqualified audit opinion on the 2020 financial report, with key audit matters identified as impairment provisions for funds lent and financial assets purchased under resale agreements, and fair value assessment of financial assets - The auditing firm is ShineWing Certified Public Accountants (Special General Partnership), which issued a standard unqualified audit opinion343 - Key audit matters include: - Impairment provisions for funds lent and financial assets purchased under resale agreements: Due to the complexity of the expected credit loss measurement model, involving significant management judgment and assumptions, and material amounts345 - Fair value assessment of financial assets: Due to the material amount of financial assets measured at fair value, and the complexity of valuing some assets, involving significant management judgment346 Consolidated Financial Statements In 2020, total assets reached RMB 63.86 billion, with net profit attributable to parent company shareholders of RMB 1.12 billion, while operating cash flow was negative due to increased trading financial assets and repurchase business Consolidated Balance Sheet Summary (December 31, 2020) | Item | Amount (RMB) | | :--- | :--- | | Total Assets | 63,862,883,987.81 | | Cash and Bank Balances | 21,125,476,461.86 | | Trading Financial Assets | 27,946,573,750.05 | | Funds Lent | 6,436,584,433.54 | | Total Liabilities | 37,754,888,216.16 | | Client Funds Held on Behalf of Clients | 13,578,964,783.11 | | Financial Assets Sold Under Repurchase Agreements | 12,305,344,624.31 | | Bonds Payable | 4,031,848,110.76 | | Total Shareholders' Equity | 26,107,995,771.65 | | Total Equity Attributable to Parent Company Shareholders | 26,016,145,400.03 | Consolidated Income Statement Summary (2020) | Item | Amount (RMB) | | :--- | :--- | | Operating Revenue | 5,184,163,900.03 | | Net Fee and Commission Income | 1,816,536,623.38 | | Investment Income | 1,555,235,430.72 | | Other Business Income | 1,309,653,600.76 | | Operating Expenses | 3,662,320,969.61 | | Business and Management Expenses | 2,078,321,628.18 | | Other Business Costs | 1,297,280,757.92 | | Total Profit | 1,508,204,719.84 | | Net Profit | 1,132,258,688.44 | | Net Profit Attributable to Parent Company Shareholders | 1,117,003,407.01 |