HTSC·2026-03-03 05:29Investment Rating - The report maintains an "Overweight" rating for the brokerage sector [7] Core Insights - The brokerage sector has experienced a mismatch between performance growth and valuation, influenced by funding constraints and market preferences. The report emphasizes four dimensions for sector allocation opportunities: strong reality and stable expectations, increased contribution from international business profits, capital enhancement through mergers and refinancing, and low valuations and positions that suggest strong upside potential [2][4][5] Summary by Sections Strong Reality & Stable Expectations - The breadth and depth of China's capital market have significantly improved over the past decade, with the number of A-share listed companies nearing that of the US and total market capitalization ranking second globally. The trading volume in the A-share market has become a new norm, with a daily average turnover rate of 4.2% as of February 25, 2026. The report forecasts that many brokerages will achieve record net profits in 2025, with a projected increase in industry ROE from 7.7% to 9.1% for 2026 [2][13][16] Increased Contribution from International Business - The international business of leading brokerages has shown higher leverage, broader markets, and stronger profitability. For instance, CITIC's Hong Kong subsidiary achieved an annualized ROE of 23%, significantly higher than the group's overall ROE of 9.8%. The report highlights that the contribution of net profits from Hong Kong subsidiaries is on the rise, with major brokerages actively increasing capital in these subsidiaries [3][35][33] Capital Utilization Still Has Expansion Space - Capital leverage is a core indicator constraining brokerage expansion, with many leading brokerages experiencing capital consumption acceleration. As of Q3 2025, capital leverage ratios were at historical lows for some firms. However, there is still room for capital utilization expansion due to recent mergers and regulatory support for quality institutions [4][39] Low Valuations and Positions - The average P/B ratios for large and small brokerages are at 1.41x and 1.65x, respectively, indicating low valuations compared to historical levels. The H-share index for Chinese brokerages stands at 0.84x, also reflecting low absolute valuations. The report suggests that the current low allocation of brokerage stocks in equity funds presents a high cost-performance opportunity [5][24][30] Key Recommendations - The report recommends focusing on high-cost performance opportunities within the sector, particularly on leading brokerages such as CITIC, Guotai Junan, and Guangfa, as well as quality regional brokerages [9][5]