Haitong Securities: The capital market continues to recover, and insurance business operations have significant procyclical characteristics, optimistic about the development of the health care industry

Zhitong Finance App Securities and Haitong Securities published a research report saying that since September 24, 2024, capital market activity has rebounded markedly, and various reforms have continued to advance. Securities, funds, and insurance companies have begun to accept declarations for easy swaps. In the securities industry, CITIC CICC has business qualifications; the Shanghai Stock Exchange has clarified the criteria for “asset-light and high R&D investment” to support science and technology innovation board companies to refinance and increase investment in R&D, and leading brokerage firms have significant advantages. The operation of the insurance industry has significant procyclical characteristics. In the future, with economic recovery, both the debt side and the investment side will improve significantly, and they are optimistic about the development of the health care industry; ten-year treasury bond yields are still low. If economic expectations improve and long-term interest rates rise in the future, the pressure on the investment side of insurance companies will ease significantly.

Securities: Trading volume increased dramatically in October 2024; securities, funds, and insurance companies began to accept declarations in exchange facilitation.

1) Trading volume rose sharply in October 2024. As of October 11, 2024, the average daily stock base transaction volume in October 2024 was 2879.3 billion yuan, up 214% year on year and 215% month on month. As of October 10, 2024, the balance of the two loans was 1588.4 billion yuan, a year-on-year decrease of 1.85% and a decrease of 3.67% from the beginning of the year.

2) Securities, funds, and insurance companies have begun to accept declarations for mutual exchange, and CITIC and CICC have business qualifications in the securities industry. The central bank announced “convenient exchange of securities, funds, and insurance companies” and will accept declarations from October 10, 2024, with an initial scale of 500 billion yuan. The central bank will operate through 51 specific tier-1 traders, of which the only brokerage firms are CITIC Securities and CICC.

3) The Shanghai Stock Exchange has clarified the criteria for “light assets and high investment in R&D” to support science and technology innovation board companies to refinance and increase investment in R&D. The Shanghai Stock Exchange formulated the “Shanghai Stock Exchange Issuance and Listing Review Rules Application Guidelines No. 6 - Asset-Light and High R&D Investment Certification Criteria (Trial)”, which clarifies the scope of application, refines certification standards, further tightens and compacts the responsibilities of intermediaries, strengthens information disclosure requirements, and strengthens supervision of fund-raising.

4) The Shanghai Stock Exchange held a brokerage symposium in an effort to open up the “last mile” of policy implementation. The Shanghai Stock Exchange held a brokerage symposium to listen to opinions and suggestions on further invigorating the merger, acquisition and restructuring market and opening up the “last mile” of policy implementation. Eight brokerage firms, including CITIC Securities, CITIC Construction Investment, Huatai United, Guoxin Securities, Orient Securities, and GF Securities, attended the conference. The Shanghai Stock Exchange will continue to deepen market-based reforms in mergers, acquisitions and restructuring, continuously improve various institutional mechanisms, strengthen market communication and services, promote more open, transparent and predictable supervision, and jointly create a good market ecosystem that supports high-quality industrial mergers and acquisitions.

5) On October 11, 2024, the brokerage industry (not including Oriental Wealth) had an average valuation of 1.4x2024EP/B. We recommend high-quality leaders that fully benefit from active capital market policies, such as CITIC Securities, Huatai Securities, and CICC.

Insurance: There have been improvements on both the debt side and the asset side, undervaluation+low positions, and both offense and defense.

1) Xinhua Insurance announced a pre-increase in performance. The profits of other insurance companies are also expected to increase significantly in the third quarter. Xinhua Insurance's net profit for the first three quarters is estimated to be 18.6 billion yuan to 20.5 billion yuan, an increase of 9.1 billion yuan to 11 billion yuan, an increase of 95% to 115% year on year; net profit for the third quarter was about 75-9.4 billion yuan, turning a loss into a profit (loss of 440 million yuan for the same period last year). Net profit also increased significantly in the first three quarters. The main reason was that the company moderately increased its investment in equity assets in the first three quarters; the recent recovery and rise in the capital market led to a sharp year-on-year increase in the company's investment income in the first three quarters of 2024. Wandequan A, Shanghai and Shenzhen 300, and China Bond Indices rose 8.2%, 17.1%, and 2.7% respectively in the first three quarters of 2024, which is significantly better than -1.4%, -4.7%, and +0.8% in the same period last year, which is expected to drive a significant increase in the profit growth rate of the insurance industry.

2) The insurance industry disclosed premiums for August, and adjustments to scheduled interest rates led to short-term high growth in life insurance premiums. The original premiums of personal insurance companies in August were +54% year-on-year, a significant increase from the July growth rate; health insurance was +21% year-on-year. According to Haitong Securities, the main reasons for the sharp increase in premium growth in August were: ① the short-term sales peak before the suspension of sales due to the adjustment of the reservation interest rate for traditional insurance in September, and ② the lower base due to the reduction in scheduled interest rates for the same period last year. Industrial insurance was +9% year-on-year, and the overall growth rate was relatively stable. Haitong Securities is still optimistic about the long-term development of leading insurers. 3) Haitong Securities believes that insurance business operations have significant procyclical characteristics. In the future, as the economy recovers, both the debt side and the investment side will improve significantly. On October 11, 2024, the insurance sector was valued at 0.51-0.88 times 2024 EP/EV. It is still at an all-time low level, maintaining a “superior to the market” rating.

Diversified finance: 1) Trust: The size of trust assets at the end of 2023 was 23.92 trillion yuan, +13.18%; the operating revenue of the trust industry in 2023 was 86.4 billion yuan, +2.96% year on year; total profit was 42.4 billion yuan, +16.92% year over year. The “Interim Measures on the Supervision, Rating and Classification of Trust Companies” were issued and implemented. In the future, trust companies will gradually move towards a path of differentiated development under the regulations of differentiated supervision. 2) Futures: Multiple departments jointly issued “Opinions on Strengthening Supervision and Risk Prevention to Promote High-Quality Development of the Futures Market” to strengthen supervision, prevent risks, and promote high-quality development of the futures market. The volume of the national futures exchange market in September 2024 was 794 million lots, with a turnover of 53.69 trillion yuan, +6.39% and +4.29% year-on-year respectively. In August 2024, the net profit of the National Futures Company was 517 million yuan, a year-on-year decrease of 46.54%.

Risk warning: A sluggish market has led to both a decline in performance and valuation.