CITIC Securities Co, China's largest publicly traded securities broker, reported an 800 per cent jump in net profit in the first half of the year, as revenue was boosted by a market rally in which the benchmark Shanghai Composite Index gained around 40 per cent since the start of the year.

 

Net profit rose to 627 million yuan (US$78.38 million), or 0.21 yuan (2.6 US cents) a share, from 66.2 million yuan (US$8.28 million), or 0.027 yuan (0.3 US cent) a share, a year earlier, the Beijing-based company said in a preliminary earnings statement filed with the Shanghai Stock Exchange on Friday.

 

CITIC Securities' first-half performance beat expectations of many analysts, yet it is not so surprising, after all, considering the benchmark Shanghai Composite Index gained around 40 per cent since the start of the year and daily turnover surged to more than 50 billion yuan (US$6.25 billion) on some days.

 

"The performance of the brokerage sector closely follows the ups and downs of the stock market," said Liang Jing, an analyst with Guotai Jun'an Securities. "In the first half, most of the brokerage firms have seen their business rebound to profitable levels, driven mainly by surging broking fees as well as rising earnings on account trading."

 

Liang estimated that CITIC Securities posted 1 billion yuan (US$125 million) in broking revenue in the first half, accounting for the highest share of the securities broking market, of around 7 per cent.

 

CITIC Securities reported 1.82 billion yuan (US$228 million) in total revenue in the first half, almost 10-fold of what it earned in the same period last year.

 

Meanwhile, most of the non-listed brokerage firms have released their first-half results. The Shanghai-based Shenyin Wanguo Securities Co pulled in 780 million yuan (US$97.5 million) in net profit, ranking first. Guotai Jun'an, also Shanghai-based, closely followed with a little more than 700 million yuan (US$87.5 million) in net profit.

 

"In the second half, performance in the brokerage sector will continue to grow yet at a slowed rate as the market rally will find it hard to sustain because of the overheating economy, which signals heightened policy tightening and a slew of new share offerings that will divert capital," Liang said.

 

"Apart from broking and trading on accounts, the brokerages will look to investment banking business to gain profit."

 

CITIC Securities, for instance, has confirmed it will underwrite the A- and H-share offerings of the Industrial and Commercial Bank of China. CITIC Securities stock rose to 15.36 yuan (US$1.92) per share in the early morning on Friday, hit the limit for the day on the preliminary earnings statement. It closed at 14.49 yuan (US$1.81), up 3.80 per cent from Thursday's close.

 

China's stock market, mired in a four-year slump, has staged an impressive rally since the beginning of the year, as regulators conducted a share reform converting about US$250 billion in State-held non-tradable shares into regular trade equity and lifted a ban on new share sales in May, a year after initiating the reform.

 

Yet on concerns of a stream of upcoming new share offerings, excessive money liquidity and accelerating growth in the gross domestic product, the benchmark Shanghai Composite Index corrected itself downward since June by slumping by more than 5 per cent on June 7.

 

(China Daily July 22, 2006)