Rating: Cautiously Bullish ｜ Target Price: RMB 23.5-25.5 (fair value under base case) ｜ Current Price: RMB 21.90 (closing price of 2026-09-01) ｜ Margin of Safety: approx. +7% (vs. base-case fair value floor of RMB 23.5) ｜ Time Horizon: 12 months ｜ Confidence: 0.60
Report Date: 2026-09-03. Valuation benchmark is the closing price of RMB 21.90 on the last completed trading day of 2026-09-01; total share capital of 7,825 million shares (2026-06-30, including 1,921 million H shares), corresponding to a total market cap of approx. RMB 171.4 billion (A-share price × total share capital). Book value per share must distinguish two bases: common equity BPS of RMB 17.74 (net assets attributable to parent of RMB 176.788 billion excluding approx. RMB 38.0 billion of perpetual bonds and other equity instruments), corresponding to PB of 1.23x; the market's commonly cited "PB 0.97x / below book" is the perpetual-inclusive basis (BPS RMB 22.59). This report's valuation and peer comparisons uniformly use the common equity basis.
GF Securities' H1 2026 net profit attributable to parent was RMB 11.652 billion (+80.1%), with Q2 alone at RMB 6.945 billion (up approx. 87% YoY); the earnings center has systematically shifted up from the 2023-2024 level (ROE 5.7%/7.4%) to approx. 15% annualized for the full year; yet the current price of RMB 21.90 implies a common equity PB of only 1.23x, and the market-implied steady-state ROE backed out from the PB-ROE framework is approx. 11-12%—the market has priced in a "cyclical pullback" but has not paid for the "new normal after the trading center shifted up." We judge the valuation as reasonably undervalued: base case (trading center stabilizing at RMB 2.2-2.5 trillion, steady-state common equity ROE of 11.5-12%) fair value range of RMB 23.5-25.5, +7% to +16% vs. the current price; probability-weighted fair value approx. RMB 24.12, expected return approx. +10.2%. There are two key constraints: first, proprietary-trading-related income accounts for 52.6% of revenue; bond yields and trading volume are the biggest sources of volatility—August ADT has fallen 12% MoM to RMB 1.99 trillion, and margin financing has retreated from its RMB 3 trillion peak to approx. RMB 2.66 trillion—the cooling is underway; second, sell-side expectations are extremely crowded (33 Buy/0 Sell, consensus EPS revised up +15.8% over the past 90 days), leaving limited marginal catalysts after results are delivered. Cautiously bullish; use the October Q3 report (cumulative first three quarters ≥ RMB 16.0 billion) as the primary validation checkpoint; reassess if the price falls below RMB 18 (bear-case midpoint) or trading activity drops sharply.
Nature of the opportunity: Earnings have stepped up (2026H1 net profit ranked No. 4 in the industry, first half-year above RMB 10 billion) while valuation has not kept pace (PB 1.23x, implied steady-state ROE approx. 11.5%); this is a right-skewed opportunity within a mismatch period of "earnings step-up + valuation lag"; evidence strength Grade B (primarily first-hand financial reports; H2 earnings path contains unverified assumptions).
The three most important changes over the next 6-12 months: ① Whether 2026 full-year net profit can reach the RMB 20 billion level (clear once the first three quarters ≥ RMB 16.0 billion), to be validated first by the October Q3 report; ② Where ROE lands as it moves from ~15% annualized in 2026 toward steady-state 11.5-13%, to be confirmed in the 2026 annual report to 2027 interim report, with the overseas capital injection (≤ HKD 6.101 billion) moving internationalization from narrative to financial statements; ③ Resolution of the Meishang Ecology litigation and the Qingyue Technology advance compensation, clearing contingent liabilities and the compliance discount (a double-edged sword).
Primary share price drivers (by importance): market trading center (ADT/margin balance) ＞ proprietary exposure and bond yields ＞ consensus upgrades and pace of ROE re-rating.
Verifiable expectation gap: sell-side consensus FY2026 EPS of RMB 2.38 (n=17, equivalent to approx. RMB 18.6 billion attributable net profit) implies only approx. RMB 7.0 billion for 2026H2 (-40% HoM vs. H1), whereas we estimate H2 at approx. RMB 8.9-11.4 billion—the divergence is as wide as +26% to +46% on the H2 basis (diluted to +8% to +17% on a full-year basis). The Q3 report is the adjudication point: if the first three quarters ≥ RMB 16.0 billion and consensus does not catch up, the "expectation gap" thesis is falsified.
Validation and falsification: Catalysts—Q3 report (2026-10), implementation of interim dividend (RMB 2.5 per 10 shares), arrival of Hong Kong capital injection, Meishang verdict, size verification of the dual public fund stars; Falsification—Q3 single-quarter profit < RMB 4.35 billion, ADT falling below RMB 1.8 trillion, margin balance below RMB 2.4 trillion, 10-year CGB yield rising more than 30bp in a quarter, regulatory escalation such as sponsorship-qualification suspension.
Estimation logic: full-year RMB 21.8 billion implies H2 of approx. RMB 10.1 billion (2025H2 was RMB 7.232 billion, +40% YoY; -13% HoH vs. H1); within that, Q4 needs approx. RMB 4.0 billion, or only approx. +11% YoY excluding the one-off Meishang provision in 2025Q4. The market's bearish view (Industrial Securities and Gushengtong morning meetings, 2026-09-02) holds that brokerage business momentum will decline noticeably QoQ and margin growth will narrow—this is precisely the source of our divergence from consensus: the street's implied -40% HoH for H2 is overly conservative (2025 H2/H1 was 1.12, and the 2026Q2 single-quarter run rate already reached RMB 6.945 billion). But it must be acknowledged that this forecast is sensitive to the assumption of RMB 2.0-2.3 trillion ADT for Q3-Q4, and room must be reserved for possible additional provisions from the Meishang/Qingyue cases—hence confidence is only 0.62.
Quantifying this asset: based on ownership (GF Fund 54.53% consolidated; E Fund 22.65% equity method), the two public funds contributed approx. RMB 1.869 billion in 2026H1, about 16% of attributable net profit; the investment management segment's operating margin of 52.95% (+17.5pp YoY) is an important source of improved profit quality. However, two caveats: first, public fund profits themselves carry market beta (benefiting from equity fund turnover of +96.98% and the equity rally) and are not a counter-cyclical stabilizer; the impact of Phase 3 of the public fund fee reform (distribution channel, implemented in 2025) has not been fully cleared. Second, by market cap GF (approx. RMB 171.4 billion) is almost on par with Huatai Securities (approx. RMB 172.8 billion) while H1 net profits differ by only 0.4%—the market has in fact not paid any visible premium for the public fund assets; the PB difference is mainly a mechanical difference in BPS. This asset should therefore be understood as "support for the ROE center plus a long-dated option," not an explicit premium source in current valuation.
The current price requires the company to achieve a steady-state common equity ROE of approx. 11.5%, whereas the company's TTM is already approx. 13.3% and sell-side FY2027 consensus implies approx. 13.4%. Three caveats: ① the conclusion is parameter-sensitive—with COE at 11% and g at 3%, the implied ROE rises to 12.9%, narrowing the gap to TTM to approx. 0.4pp; ② PB sits at the 67% percentile of the past 5 years, hardly a historical trough; ③ on the same fundamentals, the H shares trade at only approx. 0.70x (perpetual-inclusive basis) with an A/H premium of approx. 40%—international investors refuse to pay above 1x PB for the A-share basis, a cross-market constraint on the valuation judgment. Base-case fair value of RMB 23.5-25.5 corresponds to 1.25-1.33x the estimated 2026E year-end common equity BPS of approx. RMB 19; upside relies mainly on BPS accretion (approx. +7%) plus modest multiple repair (+2% to +8%), not on aggressive multiple expansion.
Exposure profile: financial assets at FVTPL rose 27.2% in half a year to RMB 461 billion; proprietary non-equity/net capital at 336% (absolute size approx. RMB 385 billion, +7.3% vs. start of year; the ratio fell from 364%—the company has proactively reduced the ratio while the absolute amount still grew); proprietary equity/net capital at 32.18% (-11.95pp vs. start of year, directional equity exposure visibly contracted). Sensitivities must be honestly flagged: portfolio duration is undisclosed; if yields rise 100bp, the pre-tax impact under a 1.5-4 year duration assumption range is approx. RMB 5.8-15.4 billion (approx. RMB 9.0 billion at a neutral 2.3 years, excluding derivative hedging buffers; the portion in OCI hits net assets but not profit); OCI other equity instruments of RMB 43.487 billion have already seen fair value changes turn negative this period (other comprehensive income of -RMB 1.749 billion going directly into net assets). August ADT of RMB 1.99 trillion (-12% MoM) and margin balance down approx. 11% from the peak are facts in progress, not tail assumptions.
The volume step-up is real (turnover, margin balance, and IPO all at records) and the company is well positioned: H1 attributable net profit of RMB 11.652 billion ranks No. 4 in the industry (only RMB 40 million behind Huatai, about 10% ahead of China Merchants—rankings can swap quarter to quarter), margin share rose from 5.47% to 5.74%, and brokerage share recovered. But two discounts apply: first, July-August 2026 ADT of approx. RMB 2.1 trillion is about 22% below the H1 average—the center is drifting lower at the margin; second, "volume up, price down"—wealth management segment revenue of +44.8% lags far behind the company's equity fund turnover growth of +110%, and net interest income fell 7.6% YoY, with commission rates and unit revenue rates declining (estimated approx. -31%) offsetting the volume expansion. In addition, the absence of M&A integration burdens is a stability plus under the "support the good, restrict the bad" regulatory framework, but it also means forgoing opportunities for a size leap (post-merger, Guotai Haitong's total assets have taken the top spot).
As a financial enterprise, a securities firm has no gross margin/free cash flow/net debt concepts; the relevant rows are replaced by ROE, leverage, and risk control metrics; operating cash flow is distorted by client margin deposits and trading in financial instruments and is for reference only, not a quality judgment.
| Metric | FY2023 | FY2024 | FY2025 | 2026H1 (latest period) |
|---|---|---|---|---|
| Total operating revenue (RMB 100mn) | 229.94 | 264.22 | 354.93 | 268.83 (+74.6%) |
| Net profit attributable to parent (RMB 100mn) | 69.78 | 96.37 | 137.02 | 116.52 (+80.1%) |
| Net profit attributable to parent ex-non-recurring (RMB 100mn) | — | approx. 89.1 (backed out from 2025 +59.93%) | 142.57 | 119.05 (+88.6%) |
| Net margin attributable to parent | 30.3% | 36.5% | 38.6% | 43.3% |
| Weighted ROE | 5.66% | 7.44% | 10.16% | 8.08% (half-year, +3.25pp YoY) |
| Net assets attributable to parent (RMB 100mn, period end) | 1,357.18 | 1,476.02 | 1,561.11 | 1,767.88 |
| Book value per share (RMB, period end) | — | — | 20.53 (incl. perpetuals) | 22.59 (incl. perpetuals) / 17.74 (common equity) |
| Operating cash flow (RMB 100mn) | -89.19 | +99.71 | -277.81 | +300.63 |
| Total assets / net assets attributable to parent (x) | 5.03 | 5.14 | 6.25 | 6.75 |
| Risk coverage ratio | — | — | 231.61% | 233.20% (regulatory warning line 120%) |
| Net stable funding ratio | — | — | 145.32% | 144.53% (regulatory line 100%) |
Reasons for metric changes (excerpts with YoY ≥ ±20%, all with company explanations): 2026H1 fair value change gains +467.6% to RMB 6.101 billion, explained by the company as "mainly attributable to increased fair value change gains on financial assets at FVTPL" (financial assets at FVTPL contributed RMB 18.275 billion, derivatives -RMB 9.655 billion); 2025 non-operating expenses +2,579.9% to RMB 821 million, due to a RMB 764 million provision for expected liabilities from the Meishang Ecology special representative litigation; income tax expense +131.0%/+124.7% in 2025/2026H1 respectively, explained as "increase in taxable income"; 2026H1 funds from securities brokerage agency +39.3% to RMB 316.985 billion, from client margin inflows; 2025 financial liabilities at FVTPL +461.8% to RMB 52.628 billion, from increased fixed income hedging/market-making positions.
Volume: Revenue RMB 26.883 billion (+74.6%), attributable net profit RMB 11.652 billion (+80.1%), ex-non-recurring RMB 11.905 billion (+88.6%; ex-non-recurring above attributable because non-operating expenses were mainly litigation provisions). Pace: Q1 RMB 4.707 billion (+70.7%) → Q2 RMB 6.945 billion (approx. +87% YoY, +47.5% QoQ), quarter-on-quarter acceleration, mainly from the resonance of proprietary trading and brokerage. By line (note basis): net brokerage fee income RMB 6.030 billion (+69.9%), investment banking RMB 493 million (+53.8%), asset management and fund management RMB 4.841 billion (+31.9%, of which fund management RMB 4.657 billion), net interest income RMB 979 million (-7.6%, higher interest expenses on debt), proprietary trading (investment income + fair value changes) RMB 14.130 billion (approx. +137% YoY, 52.6% of revenue). Is it priced in? The 7-15 results preannouncement (RMB 11.0-12.0 billion) already gave the range, and the 8-29 interim report landed at the midpoint; since the preannouncement, the share price has not made a new high and is down approx. -4.2% YTD (+2.8% over the past year, a drawdown of approx. 12% from the 52-week high of RMB 24.86)—H1 results themselves are largely priced in; the marginal information lies in sell-side consensus (formed before the interim report) still awaiting upgrades, and the direction of H2 trading activity.
Model in brief: full-license comprehensive securities firm, A+H listed, with no controlling shareholder or actual controller (diversified shareholding by Jilin Aodong, Liaoning Chengda, and Zhongshan Public Utilities). Revenue = light capital (brokerage/wealth management, investment banking, asset management/public funds—earning commissions, underwriting fees, management fees) + heavy capital (proprietary investment, margin financing, market-making and derivatives—earning spreads and interest, consuming net capital). In 2026H1, heavy-capital revenue (investment income + fair value changes + net interest income) accounted for approx. 56% of revenue (41% in 2024)—the mix has tilted toward capital-intensive businesses.
Cash content of earnings (securities firm basis): a securities firm's OCF is dominated by client margins and trading in financial instruments; OCF/net profit swings violently between -1.86 (2025) and +2.58 (2026H1)—this ratio has no quality-discriminating power for this business model; risk control and capital metrics serve as substitutes: risk coverage ratio 233.20%, net stable funding ratio 144.53%, capital leverage ratio 10.97%, all above regulatory lines; but the liquidity coverage ratio fell 18.63pp in half a year to 167.09% (balance sheet expanding faster than long-term funding—a trend item). Recurring earnings: 2026H1 ex-non-recurring of RMB 11.905 billion > attributable net profit (non-recurring items -RMB 253 million, mainly litigation-related non-operating expenses), so earnings quality is not embellished by one-offs; 2025 ex-non-recurring of RMB 14.257 billion was likewise above attributable (Meishang provisions depressed attributable profit). Sources of earnings volatility are the core quality variable for this business: the fair value change line alone accounted for 22.7% of H1 revenue, and single-quarter profits are highly sensitive to both bond and equity markets (see C4 and Chapter XI). Return on capital: weighted ROE 5.66% → 7.44% → 10.16% → 8.08% in 2026H1 (approx. 15-16% annualized), trending up and ranking first among the five leading securities firms in H1; however, from the common shareholders' perspective, perpetual bond interest must be deducted (RMB 540 million in H1, approx. RMB 1.08 billion annualized), and continued external financing since 2026—H-share placement + RMB 12.04 billion of perpetual bonds + convertible bonds—is diluting common shareholder returns (see Chapter VI). Red flags: high dependence of revenue on market beta (top five clients <5%—the risk lies not in concentration but in the market itself); GF Asset Management, after two consecutive years of losses (-RMB 593/-670 million), posted only a marginal profit of RMB 77 million in H1; proprietary non-equity/net capital at 336% is at a historically high level.
Consistency between words and deeds: pragmatic, no quantitative exaggeration. The company has refrained from issuing quantitative earnings guidance in recent years; verifiable commitment-vs-delivery samples: the 2026-07-15 earnings preannouncement of RMB 11.0–12.0 billion → actual RMB 11.652 billion, landing at the midpoint; the FY2024 annual report made only qualitative statements for 2025 (enhancing core capabilities, intensive operations) → 2025 actual revenue +34.3%, net profit attributable to parent +42.2%. Sufficient evidence, with no record of preference for inflated expectations.
Shareholder-friendliness: neutral to friendly, but payout ratio on a downward trend + continuous dilution. Dividends: FY2023 RMB 2.282 billion (~43.6% payout) → FY2024 RMB 3.803 billion (39.5%) → FY2025 RMB 4.673 billion (34.11%, company-disclosed basis) — absolute amount rising with profit, payout ratio down three years in a row; 2026 interim dividend RMB 2.5 per 10 shares (RMB 1.956 billion, 16.8% of H1 net profit, a 1.5x increase in interim intensity YoY); trailing 12-month DPS RMB 0.75, implying a dividend yield of ~3.4%. Buybacks: RMB 234 million repurchased in 2022 and cancelled in 2025; on 2026-07 the company confirmed via the investor interaction platform that it has no current buyback plans — shareholder returns currently rest on the single channel of dividends. Dilution: January 2026 H-share placement of 219 million shares (HKD 18.15/share, net proceeds HKD 3.946 billion) + H-share convertible bonds of HKD 2.15 billion (conversion price adjusted to HKD 19.08, up to ~113 million new shares) + RMB 12.04 billion of new perpetual bonds issued in H1 — common shareholders bear real dilution during the balance-sheet expansion cycle.
Risk signals: the Chief Risk Officer resigned in 2026-08 (reassigned as Deputy General Manager; the company says there is no disagreement, merely internal division of labor); in 2025 the firm was publicly censured by the Shenzhen Stock Exchange over the Meishang sponsorship case, and in July–August 2026 it received three consecutive regulatory warnings (brokerage, client trade management, investment banking internal controls), with investment banking practice quality repeatedly called out; the controlling shareholder Liaoning Chengda issued exchangeable bonds with 280 million shares (3.58% of total share capital) pledged as collateral, creating a contingent supply of shares. None of the above touches on business suspension, but the cumulative impact on classification ratings and regulatory evaluations needs monitoring.
| Segment (2026H1) | Revenue share | YoY | Operating margin | Business logic in one sentence |
|---|---|---|---|---|
| Trading & Institutional Business | 36.5% | +97.3% | 85.37% (+2.46pp) | Prop trading + market making + derivatives; capital-heavy, greatest profit elasticity |
| Wealth Management | 33.2% | +44.8% | 62.83% (-1.76pp) | Brokerage + margin financing + distribution; market β-driven, client asset accumulation |
| Investment Management | 28.2% | +97.2% | 52.95% (+17.51pp) | GF Fund consolidation + E Fund (equity method) + asset management; fee-based |
| Investment Banking | 1.9% | +52.4% | 10.72% (+9.28pp) | Equity and bond underwriting; top 10 in scale but lowest margin, in recovery |
Profit drivers: normalizing by "revenue share × operating margin," Trading & Institutional contributes ~46%, Wealth Management ~31%, Investment Management ~22%, Investment Banking ~0.3% — Trading & Institutional, second in revenue share, is actually the largest profit driver, and its 85% operating margin vs. investment banking's 11% is a 75pp gap: the former is a balance-sheet business (spreads booked directly), the latter a labor-intensive licensed business (fee competition + compliance costs); the profitability structure difference stems from the nature of the businesses. Trend: investment banking margin is recovering rapidly off a low base (+9.28pp) but its absolute contribution remains negligible; the sharp margin improvement in Investment Management is the brightest marginal change in profit quality this period; the slight 1.76pp decline in Wealth Management margin confirms "volume up, price down."
Accounting red flags (by severity): ① Meishang Ecology litigation provision (medium): RMB 821 million in non-operating expenses in 2025 booked as a concentrated provision; the provision balance swung sharply 0.45 → 0.33 → 7.98 → 10.45 㞏元, with highly subjective contingent liability measurement, plus another RMB 247 million added in H1; ② rapid expansion of high-yield instruments in OCI (medium): other equity instrument investments RMB 5.7 billion (end-2023) → 22.3 → 30.5 → 43.5 㞏元, nearly 8x in three years; permanent bonds/strategic equities designated FVOCI keep unrealized losses out of P&L, smoothing profit while amplifying equity volatility; in H1 this account's fair value change turned negative (RMB -1.230 billion); ③ sharp cross-period swings in non-operating income/expenses (medium): reversal of provisions in 2024 vs. large provisions in 2025; ④ net reversals of credit impairment losses for two consecutive years (low): +0.95 → -0.65 → -0.107 㞏元, with the company not explaining the shift from provisioning to continuous reversals; the H1 rebound in margin-financing provisions (+RMB 89 million) warrants attention as a potential inflection point; ⑤ surge in financial liabilities held for trading (low): +461.8% in 2025 to RMB 52.6 billion (bond hedging/market-making shorts), complicating balance sheet volatility.
Cross-period consistency: operating cash flow/net profit swinging sharply at -1.28 → +0.95 → -1.86 — the company attributes this to "net cash outflows from client margin deposit flows, purchases of financial instruments held for trading, and margin financing business," which is consistent with the securities firm profile; other equity instrument investments expanding 8x in three years — the company describes these as "strategic investments intended for long-term holding," consistent across periods, but the H1 decline in unrealized gains (cumulative unrealized gains RMB 2.546 → 1.076 billion) warrants tracking; government incentives declining year by year 9.82 → 6.82 → 5.20 → 0.58 㞏元 — the company only says "government incentives decreased," without explaining the cause of the trend (this item is in non-recurring items and does not affect adjusted figures). Overall judgment: no evidence of systematic profit manipulation found, but two line items — "OCI expansion + provision swings" — reduce cross-period comparability of profit and net assets, marking a gray zone requiring continuous review.
Market data and percentiles (valuation basis: 2026-09-01 close of RMB 21.90): PE(TTM) ~9.1x (TTM net profit RMB 18.884 billion), at the low end of 1/3/5-year windows — but TTM earnings include 2026's high trading activity, making this a low PE at a cyclical high; percentiles are for reference only, not a signal of cheapness or expensiveness; common equity PB(LF) 1.23x, at 24%/72%/67%/50% percentiles over 1/3/5/10-year windows; including perpetuals, 0.97x; H-shares ~0.70x; A/H premium ~40% (40.7% computed on 2026-09-02); trailing 12-month dividend yield ~3.4%. Liquidity normal (A-share daily turnover in the RMB 1 billion+ range).
Peer comparison (computed on 2026-09-02 from the same source, common equity basis):
| Company | PE(TTM) | PB | 2026H1 Net Profit Growth | FY2025 Weighted ROE | H1 Cumulative ROE |
|---|---|---|---|---|---|
| CITIC Securities | 10.8x | 1.45 | +69.6% (RMB 23.34 billion) | 9.81% | 6.96% |
| China Merchants Securities | 8.9x | 1.26 | +104.9% (RMB 10.62 billion) | 9.21% | 7.51% |
| GF Securities | 9.1x | 1.23 | +80.1% (RMB 11.65 billion) | 10.16% | 8.08% |
| Huatai Securities | 8.5x | 0.97 | +54.9% (RMB 11.69 billion) | 8.22% | 5.53% |
| Guotai Haitong | 9.6x | 0.94 | +28.7% (RMB 20.26 billion) | 11.10% | 5.76% |
Market-implied expectations: solving PB = (ROE − g)/(WACC − g) for ROE (common equity PB 1.23x, WACC 10–10.5%, g 3–5%), the current price implies a steady-state common equity ROE of ~11.2–12.3% — equivalent to the market believing that 2026's annualized ROE of ~15–16% will revert to "slightly above 2025 (10.16%)." In one sentence: the current price requires the company to sustain a steady-state ROE of ~11.5%, whereas TTM is already ~13.3% and the current trend and sell-side FY2027 expectations point to 12.5–13.4%. Sensitivity disclosure: at COE of 11% (upper bound of the sector's required return) and g of 3%, implied ROE rises to 12.9%, narrowing the gap with TTM to ~0.4pp — the "undervalued" conclusion would disappear under pessimistic parameters; this is the main vulnerability of this judgment; the persistent discount of H-shares at 0.70x is a cross-market constraint.
Three-tier value (EPV, computed by the system on a unified basis): Asset value (floor) = book value per common share of RMB 17.74 (the accounting floor from a liquidation perspective); EPV with zero growth = normalized EPS RMB 1.55 ÷ WACC 10.5% = RMB 14.76/share (normalized base takes the midpoint of mid-cycle common equity ROE 8–9.5% × BPS RMB 17.74 → RMB 1.42–1.68; neither the 2026E cyclical-high EPS of ~RMB 2.8 nor the 2023–2025 historical average — whose share capital/perpetual base has changed — was used); growth option = 21.90 − 14.76 = RMB 7.14/share, 32.6% of the current price. Structural interpretation: EPV (RMB 14.76) below book (RMB 17.74) honestly reflects the industry attribute that mid-cycle securities firm ROE is below WACC — book value itself is not zero-growth value; the portion of price above book is the option the market is paying for "ADT center moving up + public fund fee reform clearing + international capital raising driving ROE migration toward 11–13%," roughly one-third of the price — pricing is not extreme, neither bubble nor panic.
Three scenarios and odds (probabilities are this report's judgment):
| Scenario | Probability | Fair range | Core assumptions and multiple anchors |
|---|---|---|---|
| Bear | 25% | RMB 16–19 (-27%~-13% vs. current) | ADT below RMB 1.8 trillion + significant bond market correction: triple blow to brokerage/margin financing/prop trading; steady-state ROE_c falls back to 8–9%, PB_c 0.85–0.95x × BPS_c ~RMB 18.8–19; cross-check: 2027E common EPS ~RMB 1.85 × 9x ≈ RMB 16.6. 15–28% below the most pessimistic published anchor already covered (lower end of sell-side aggregated target prices at RMB 22.30; consensus implying only ~RMB 7.0 billion for 2026H2) |
| Base | 50% | RMB 23.5–25.5 (+7%~+16% vs. current) | ADT center stabilizing at RMB 2.2–2.5 trillion, margin financing RMB 2.5–2.7 trillion, fee reform impact fully absorbed: steady-state ROE_c 11.5–12%, PB_c 1.25–1.33x × 2026E year-end BPS_c ~RMB 19.0. Anchoring basis: ① own 5-year common equity PB center of ~1.15–1.20x (current 1.23x at 67th percentile) + steady-state ROE half a notch above 2024–2025; ② peer cross-section — CITIC and CMS at 9–10% ROE trade at 1.26/1.45x; GF's steady-state ROE_c is higher yet the target multiple still carries an 8–14% discount to CITIC, without relying on excess premium. PE cross-check: 2027E common EPS ~RMB 2.9 × 9–10x. In the middle-to-lower part of the market anchor range (RMB 22.30–35.83), more conservative than the consensus target median of RMB 28.10 |
| Bull | 25% | RMB 28–32 (+28%~+46% vs. current) | Margin financing/ADT sustained at RMB 2.7 trillion + incremental policies on long-term capital inflows/M&A consolidation: steady-state ROE_c 12.8–14%, PB_c 1.5–1.7x; cross-check 2027E EPS ~RMB 3.3 × 9.5x ≈ RMB 31, mutually corroborating the sell-side target median of RMB 28.10, short of the most optimistic offer of RMB 35.83 |
In-house earnings forecasts vs. third-party reconciliation:
| Basis | FY2026 Revenue | FY2026 Net Profit | FY2027 Net Profit | Notes |
|---|---|---|---|---|
| This report's forecast | RMB 48.0–54.5 billion (base 50.5) | RMB 20.0–23.0 billion (base 21.8, +59%) | RMB 20.5–24.5 billion (base 22.8) | H2 assumes ADT RMB 2.0–2.3 trillion, margin financing RMB 2.5–2.7 trillion; Q4 YoY +11% excluding Meishang one-offs would suffice; RMB 0–0.5 billion buffer for additional provisions |
| Sell-side consensus (n=17/16) | — | ~RMB 18.6 billion (EPS RMB 2.38) | ~RMB 20.5 billion (EPS RMB 2.625) | Mostly formed before interim results, implying H2 QoQ -40%; revised up +15.8% over the last 90 days |
| Management | No quantitative guidance | — | — | Qualitative: wealth management driven by client demand, prop trading shifting to client-driven/strategies, capital raised for internationalization |
We are ~+8%~+17% above consensus for the full year (H2 basis +26%~+46%); the gap stems from the street's overly conservative assumption of H2 QoQ -40%; this is the main cognitive divergence of this research, to be adjudicated by the Q3 report in October.
Conclusion: fairly valued at a low level; above-average quality at a reasonable price. Base-case fair value RMB 23.5–25.5; margin of safety vs. the base-case lower bound is ~+7.3% (+11.9% vs. the midpoint), probability-weighted fair value ~RMB 24.12, expected return ~+10.2% (computed by the system on a unified basis). The downside is cushioned by common equity book value of RMB 17.74 (current price at a 23% premium) and a 3.4% dividend yield; the upside depends on Q3 results delivery and consensus catch-up. Odds skew right but with no deep discount — this is "actionable fair cheapness," not "mispricing."
Industry Size: In 2025, China's securities industry—150 brokers in total—generated operating revenue of RMB 541.171 billion (+19.9%) and net profit of RMB 219.439 billion (SAC data, unaudited basis); total industry assets stood at RMB 14.83 trillion, net assets at RMB 3.34 trillion, net capital at RMB 2.44 trillion, and assets under custody at RMB 9.53 trillion. In 2026H1, the 43 listed brokers posted combined revenue of RMB 364.7 billion (+45.9%) and net profit attributable to parent of RMB 155.4 billion (+49.0%), marking a second consecutive year of high growth; the chief non-bank financial analyst at CITIC Securities (2026-08-31) projects industry profit to grow another ~14% in full-year 2026, with industry ROE reaching the 80th percentile of the past decade. The central variable of growth is not industry scale itself, but trading volume: Shanghai–Shenzhen daily average stock-and-fund turnover rose from ~RMB 1.06 trillion in 2024 → RMB 1.70 trillion in 2025 (full-year RMB 420 trillion, a record, +60%) → ~RMB 2.74 trillion in 2026H1 (half-year RMB 317.5 trillion, another record, roughly +61% YoY); a single-day record of RMB 3.64 trillion was set on 2026-01-12; most recently, on 2026-09-02, single-day turnover was ~RMB 1.79 trillion, with August's daily average at RMB 1.99 trillion (-12% MoM). Margin financing balance: RMB 1.85 trillion at end-2024 → RMB 2.54 trillion at end-2025 → first-ever breach of RMB 3 trillion on 2026-06-23 → pullback to ~RMB 2.66 trillion in late August (2.65% of free-float market cap, a healthy range). IPO: RMB 67.4 billion in 2024 → RMB 131.8 billion in 2025 (+96%) → over RMB 144.8 billion in the first 8 months of 2026 (already exceeding full-year 2025, led by the STAR Market); Hong Kong raised HKD 286.3 billion via IPOs in 2025, ranking first globally.
Value Chain and Value Distribution: The upstream comprises exchanges/depositories/regulators (licenses and fee rates set the ceiling—rigid) and the funding side (public funds, insurers, social security, and 240 million individual investors); the middle tier is the securities firms themselves—connected on one end to financiers (underwriting) and on the other to investors (brokerage, distribution, asset management, proprietary trading), with capital-intensive businesses leveraged on net capital; the downstream is household wealth preservation and appreciation, corporate financing, and institutional allocation. In 2025, the industry's revenue structure was: proprietary investment income RMB 185.3 billion (34.2%, the largest) > brokerage RMB 163.8 billion (30.3%) > interest income RMB 64.7 billion (12.0%) > underwriting and sponsorship RMB 39.5 billion (7.3%) > asset management RMB 23.9 billion (4.4%)—capital-intensive business has replaced capital-light business as the main profit engine, which explains the industry's high profit correlation with market conditions. On the capital-light side, public fund fee reform continues to compress prices (average industry management fee rate already down to 0.679%, new commission rules, third phase of sales fee reform in 2025-09), but the four major public fund fees reached RMB 120.6 billion in 2026H1 (+6.6%), bottoming out and rebounding with scale expansion. GF Securities' positioning in the value chain: top-tier brokerage and margin financing share (5.74% in margin), public fund equity stakes (GF Fund ranked No. 3 + E Fund No. 1)—the industry's scarcest combination, bond underwriting ranked No. 6; the weakness lies in A-share equity underwriting scale.
Supply, Demand, and Competitive Landscape: On the supply side, the 150 licenses are essentially no longer expanding, but businesses are highly homogeneous—the brokerage/margin/proprietary tracks are crowded, commission rates keep declining (industry net commission rate fell from 0.024% in 2024 to 0.020% in 2025; Shanghai broke below 0.018% in 2026-04, a cumulative drop of ~22% over two years), so revenue growth can only "make up in volume for the price decline." Concentration is accelerating: 2025 revenue CR10 at ~57.6% (+10.4pct vs 2019), CR5 at ~37.9%; in 2026H1, the "RMB 10 billion net profit club" expanded to 5 firms (CITIC 23.34bn, Guotai Haitong 20.26bn, Huatai 11.69bn, GF 11.65bn, China Merchants 10.62bn), with the top 10 accounting for nearly 70% of listed brokers' net profit. A wave of M&A consolidation is reshaping the landscape: after Guotai Junan absorbed Haitong, its total assets/net capital rose to No. 1 in the industry (confirmed in the 2026-08 interim report); Guolian + Minsheng, Western + Guorong, and Guosen + Wanhe have closed; the CICC system (share-swap absorption of Dongxing and Cinda) entered CSRC review in 2026-07. Substitution threats: internet platforms (East Money/Tonghuashun) diverting retail trading; bank channels diverting wealth distribution. Entry barriers: license scarcity, net capital thresholds, channel and advisory networks, and top public fund equity stakes already locked up by securities-affiliated players.
Cyclicality and Regulation: The industry is currently in a dislocated phase of "upcycle + earnings delivery + lagging valuation"—trading volume, margin financing, and IPOs, the three major β factors, are all in historically high ranges, industry profits have grown strongly for two consecutive years, yet sector valuations remain at low deciles of the past decade, and multiple leading brokers (including perpetual bond basis) trade below book value (P/B < 1). The regulatory main line clearly favors leaders: "invigorating capital markets" (2023-07 Politburo) → new "Nine National Guidelines" (2024-04) → the "9·24" package of incremental policies and Six M&A Measures (2024-09) → medium- and long-term capital market entry plan (2025-01) → high-quality public fund development action plan (2025-05) → STAR Market "1+6" (2025-06) → third phase of public fund sales fee reform (2025-09) → 2026 CSRC stance of "backing the strong and restricting the weak, supporting quality leading institutions to grow stronger and bigger, building world-class investment banks." Price compression (commissions, public fund fees) coexists with the push for scale (head concentration, long-term capital inflows)—for a top broker like GF, ranked No. 4 in net profit with no integration burdens, the net policy effect is positive.
Company Positioning in the Industry: In 2026H1, GF posted revenue of RMB 26.883 billion, ranked No. 3 among listed brokers, and net profit attributable to parent of RMB 11.652 billion, ranked No. 4, representing ~7.4%/7.5% of listed brokers' revenue/net profit; its key operating metrics have ranked in the industry's top ten for 27 consecutive years. Sources of moat: dual public fund licenses (GF Fund, RMB 1.12 trillion non-monetary AUM, No. 3 + E Fund, RMB 1.89 trillion, No. 1), an advisory network of 4,900+ with distribution AUM of RMB 450 billion (+22%), rising margin share at 5.74%, and asset management income of RMB 4.84 billion, ranked No. 2 in the industry. Share trends: brokerage share 4.37% (+0.56pct), margin share rising—the company's share has held steady or improved during the trading volume surge. Weaknesses: investment banking income of RMB 502 million (segment basis) failed to reach the top three, A-share equity underwriting scale is small, and 2025–2026 saw a dense cluster of regulatory warnings—investment banking recovery is one of the biggest operational variables. Note on market position basis: the company's interim report describes multiple metrics as "industry-leading," while third-party (SAC/Choice) data rank net profit No. 4—the two bases do not materially conflict; this report uniformly adopts third-party rankings.
The decisive factor in broker profitability lies not in industry-size narratives, but in four trackable variables: trading volume (ADT), leveraged funds (margin financing), asset prices (bonds/equities), and policy (regulation and capital market reform)—this transmission chain is precisely what generic financial frameworks most easily miss.
Volume transmission: Brokerage commission income is approximately linear in turnover; margin interest is approximately linear in margin balance. Using 2026H1 as the base (net brokerage fee income RMB 6.030 billion, interest income from margin loans RMB 3.335 billion, margin balance RMB 173.475 billion), sensitivity analysis: if daily average turnover falls from RMB 2.74 trillion to RMB 1.8 trillion (-34%) and margin balance falls 25%, net brokerage income would drop ~RMB 2.25 billion and net margin interest impact would be ~RMB 0.58 billion, for a combined after-tax effect of ~-RMB 2.3 billion, or -20% of H1 net profit attributable to parent; if turnover falls to RMB 1.5 trillion plus margin -33%, the after-tax impact is ~-RMB 3.0 billion (-26%). Price hedge: against a backdrop of commission rates falling 14–22% annually, the company's estimated unit revenue rate fell ~31% YoY (wealth management income +44.8% vs stock-and-fund turnover +110%)—volume expansion is partially eaten by price decline; "rising share" does not mean "proportionate revenue growth." Second layer of price: proprietary trading's exposure to asset prices—of H1 proprietary income of RMB 14.130 billion, bonds were the absolute mainstay (non-equity exposure roughly 10x equity exposure); a single-quarter rise of over 30bp in 10-year treasury yields would require revaluation of exposure (see the RMB 5.8–15.4 billion range analysis in C4); fair value changes in the OCI account of RMB 43.487 billion do not flow through profit but directly hit net assets (already -RMB 1.749 billion in H1). Policy variables: medium- and long-term capital market entry and "backing the strong, restricting the weak" are slow demand-side variables; public fund fees and new commission rules are slow price-side variables; the new external securities trading access rules (effective end of 2026-08) regulate quantitative access—neutral short-term, favorable long-term for compliant leaders.
GF's Exposure Profile (Relative to Peers): High β elasticity—capital-intensive income at 56% of revenue, proprietary trading at 52.6% of revenue, its combined trading/bond market elasticity exceeds Huatai (more wealth-management/digitization-oriented) and China Merchants (more stable, lower leverage); thick buffers—risk coverage ratio 233%, NSFR 145%, net capital RMB 114.57 billion (+16.3%) among the industry's highest, with ample leverage ammunition after H-share fundraising; structural highlight—the investment management segment (fee-based) profit margin improved significantly; if the twin public fund stars maintain their leading positions, they can partially hedge against a trading volume pullback.
Judgment: Cautiously bullish, confidence 0.60, time horizon 12 months. Above-average quality (net profit No. 4 in the industry, H1 ROE highest among the five leading brokers, twin public fund engines + 4,900-person advisory network, ample risk-control metrics); reasonably low price (common equity P/B 1.23x, implied steady-state ROE ~11.5% vs company TTM 13.3%; base-case fair value RMB 23.5–25.5, safety margin ~+7%). Stating honestly the reasons for moderate confidence: direction delivery depends on the conjunction of three things—"trading volume stabilizing at high levels + Q3 earnings delivery + consensus catching up"—while August turnover already fell 12% MoM and sell-side expectations are extremely crowded; any single miss would extend the delivery timeline.
Strategy Statement: Odds are right-skewed (base +12%/bull +37%/bear -20%, central-case basis) but not deeply discounted—suitable as a structural allocation within the brokerage sector rather than an aggressive position; safety margin gradually exhausts above the RMB 23.5–25.5 range, and prices above RMB 25.5 require bull-case evidence (turnover back above RMB 2.7 trillion, incremental policy) for support.
Risks and Monitoring (summary in written form; conditions already in the monitoring list): ① Deep trading volume decline—daily average turnover below RMB 1.8 trillion, margin balance below RMB 2.4 trillion; ② Bond market rate shock—10-year treasury yield rising more than 30bp in a single quarter; ③ Q3 earnings below the RMB 16.0 billion threshold; ④ Regulatory escalation—penalties such as suspension of sponsorship qualification or significant downgrade in classification rating; ⑤ Additional impairments on the Meishang/Qingyue cases exceeding RMB 1.0 billion in total (outstanding claims of RMB 2.708 billion vs RMB 1.045 billion already provisioned); ⑥ Potential shareholder-side supply—Liaoning Chengda's exchangeable bond conversion (280 million shares/3.58%, collateral registered) or a disclosed reduction plan; ⑦ Share price breaking below RMB 18 (bear-case midpoint), triggering a re-evaluation of the thesis.
Notes on Key Data Bases: ① Book value per share and P/B are stated on a common equity basis throughout (BPS RMB 17.74, P/B 1.23x); the perpetual-bond-inclusive basis (RMB 22.59, 0.97x) is labeled separately; ② Brokerage income uses the financial statement notes basis (H1 RMB 6.030 billion, +69.9%), reported separately from the segment basis (wealth management segment revenue); ③ Market turnover data run on two parallel bases: the trend series in this report uses Shanghai–Shenzhen daily average stock-and-fund turnover (1.06/1.70/2.74 trillion), while the company basis is total market stock-and-fund turnover of RMB 378.69 trillion (H1, +96.98%)—the two cover different statistical scopes and cannot be directly divided; ④ Peer P/B and P/E are computed on 2026-09-02 from the same source (common equity basis), while GF is computed at its 2026-09-01 frozen price; cross-day discrepancy ~2%.