Expectations bullish for Hong Kong brokers

Solid 1H14 results are likely.

Results for 1H14 for the Hong Kong brokers sector are likely to be solid, with analysts remaining positive on the sector due to various developments.

According to a research note from Nomura, both Haitong International and Guotai Junan International released positive profit alerts last week stating that their 1H14 NPAT would see y-y increase of not less than 50% and 150%, respectively, during the period.

The substantial increase is mainly attributable to the growth of corporate finance, brokerage business and loans and financing businesses, according to their announcements.

The report noted that despite an 8% y-y decrease in 1H14 ADT in the Hong Kong stock market, Nomura believes that the brokerage business of the local brokers with Chinese background would continue to outperform the market given their edge in attracting mainland investors.

Here's more from Nomura:

Meanwhile, we understand that Haitong International has been making increasing efforts in growing business from institutional investors. We think corporate finance has performed well likely due to more active fund-raising activities in Hong Kong.

According to the HKEx, total funds raised from the securities market grew by 58% y-y in 1H14 (funds raised by IPOs up 104% y-y). Loans and financing business remain one of Haitong International's key drivers since last year as it focuses more on the "capital-based intermediary" business; and we expect the momentum to continue this year with strengthened capital level.

We believe Haitong International will likely deliver another set of solid results in 1H14 (to be released on 7 August), while any news flow of further opening up of cross-border activities or announcement of more schemes similar to mutual market access would likely serve as a catalyst for the sector.