Local State-Owned Cap. in US ETFs.

Source: Securities Firms China

As the disclosure of the semi-annual reports of listed financial institutions comes to an end, the operating performance of the leading futures companies has been fully revealed.

Looking at the data from the semi-annual reports, there is a divergence in the revenue performance of the leading futures companies in the industry, with a general decline in net profits, indicating a poor overall business situation. Among the 21 AA-rated futures companies, a total of 3.447 billion yuan in net profit was achieved in the first half of the year, a decrease of 14% compared to the same period last year.

Among them, CITIC Futures was the most profitable futures company in the industry in the first half of the year, achieving a net profit of 457 million yuan; Hongyuan Futures turned a loss into a profit, with a year-on-year increase of 164%; while Zhongtai Futures performed the worst, with a net profit of only 590,000 yuan in the first half of the year, a year-on-year decrease of 99%.

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The poor performance of futures companies' brokerage business, against the backdrop of reduced commission fees and interest rate cuts, is the main reason for the decline in the performance of many futures companies. As the industry enters a stage of stock competition, several futures companies have begun to look for new development directions in internationalization and risk management business.

The revenue of leading futures companies is divided, and net profits generally decline.

In the 2023 classification rating, a total of 22 futures companies were rated as AA. According to the statistics of Securities Times · Securities Firms China reporters, apart from Xinhu Futures (IPO termination), the other 21 futures companies have all disclosed their operating performance in the first half of the year.

Looking at the operating data, even the leading futures companies in the industry have felt the pressure of business operations. Overall, the 21 AA-rated futures companies achieved a total revenue of 56.934 billion yuan, with 12 futures companies achieving year-on-year growth. Net profits have declined, with a total of 3.447 billion yuan achieved in the first half of the year, a decrease of 14% compared to the same period last year.

In terms of revenue, Yong'an Futures, Galaxy Futures, Zheshang Futures, Guotai Junan Futures, and CITIC Futures ranked in the top five. The fastest growth was achieved by Shenyin & Wanguo Futures, with a year-on-year increase of 136.81%; the revenue of nine futures companies declined, with the largest decline in Haitong and Merchants Futures.

In terms of net profit, only five futures companies achieved year-on-year growth, namely Hongyuan Futures, Shenyin & Wanguo Futures, Nanhua Futures, Ruida Futures, and CITIC Futures. Among them, the fastest growth was achieved by Hongyuan Futures, which turned a loss into a profit, with a year-on-year increase of 164%.According to statistics by Securities Times · Securities China reporters, in the first half of the year, a total of 15 futures companies had a net profit exceeding 100 million yuan. The top three were CITIC Futures, Guotai Junan Futures, and Yong'an Futures, with net profits of 457 million yuan, 326 million yuan, and 308 million yuan respectively.

It is noteworthy that among the 21 AA-rated futures companies, 16 companies experienced a decline in net profit in the first half of the year, accounting for as high as 76%. Among them, Zhongtai Futures saw the largest decline, with a net profit of only 590,000 yuan in the first half of the year, a year-on-year decrease of 99%; Everbright Futures' net profit decreased by 56.13% year-on-year, and its revenue decreased by 54.58% year-on-year, with both revenue and net profit experiencing significant declines.

In response to this, Zhongtai Futures explained in its semi-annual report that due to the significant fluctuations in the domestic A-share market in the first half of 2024, Zhongtai Futures' equity options business incurred a phased loss.

Brokerage business was impacted

Even the operating conditions of leading futures companies are like this, and small and medium-sized futures companies are facing even more difficult operations.

Among the 13 futures companies listed on the New Third Board, excluding Haitong Futures, half of the futures companies saw a decline in revenue, and 5 companies suffered losses in the first half of the year. The most profitable were Changjiang Futures and Chuangyuan Futures, with profits of 31.05 million yuan and 21.13 million yuan respectively, while the others only made a few million yuan in profit.

Data from the China Futures Association shows that in the first half of this year, the cumulative operating income of futures companies was 17.976 billion yuan, a year-on-year decrease of 3.74%; the cumulative net profit was 3.844 billion yuan, a year-on-year decrease of 22.87%.

Industry insiders analyzed that there are multiple reasons for the decline in industry net profit, including the slowdown in the growth rate of capital entering the market, interest rate cuts, reduction in handling fees, and poor performance of proprietary trading, leading to a decrease in handling fee income and a decline in interest income for futures companies, testing their profitability.

Nanhua Futures stated that in the first half of the year, affected by the adjustment of the exchange's rebate policy, intensified industry competition, and a low-interest-rate environment, the development of the traditional brokerage business in the futures industry faced challenges. In the current low-interest-rate environment, the interest income of futures companies is also facing contraction, which has a certain impact on the futures industry that is mainly based on traditional business.

Taking two futures companies listed on the A-share market, Yong'an Futures and Rui Da Futures, as examples, Yong'an Futures' semi-annual report shows that in the first half of the year, Yong'an Futures' net handling fee income was 230 million yuan, and net interest income was 250 million yuan, down 35% and 23% year-on-year, respectively.Ruida Futures' semi-annual report indicates that brokerage business revenue was 245 million yuan, a year-on-year decrease of 16.2%; net fee income (on a parent company basis) was 173 million yuan, a year-on-year decrease of 26.0%.

According to statistics from the China Futures Association, in the first half of 2024, the cumulative trading volume of the national futures market was 3.46 billion contracts, with a cumulative trading value of 281.51 trillion yuan, representing a year-on-year decrease of 12.43% and an increase of 7.40%, respectively. As of the end of June 2024, the customer equity scale of the futures industry was 1,392.95 billion yuan, a decrease of 2.1% from the end of the previous year.

Xu Kang, an analyst at Hua Chuang Securities, pointed out in a research report that the overall reduction in volume and increase in value in the futures market has led to a general decline in brokerage business for futures companies.

Laying out internationalization and risk management services

Against the backdrop of the overall slowdown in the growth rate of the futures industry and the reduction in fee income, competition in the domestic futures industry has intensified again. The brokerage business is facing development pressures, increasing operational difficulties, and futures companies are constantly striving to find new growth points. Among these, internationalization and risk management services are key directions for futures companies to focus on.

In terms of internationalization, Nanhua Futures, which has been laying out early, has reaped considerable rewards in recent years.

The semi-annual report shows that Nanhua Futures' overseas subsidiary, Henghua International, achieved a business income of 321 million yuan in the first half of the year, with a net profit exceeding 200 million yuan, representing year-on-year increases of 28.47% and 39.83%, respectively. Currently, Henghua International has completed the layout in the four major international cities of Hong Kong, Chicago, Singapore, and London, covering three major time zones of Asia, Europe, and North America.

Ruida International Financial Co., Ltd., a wholly-owned subsidiary of Ruida Futures, achieved revenue of 10.65 million yuan from overseas business in the first half of the year, a year-on-year increase of 160.1%.

Yang Yinghui, Deputy General Manager of COFCO Futures, stated that international business has become a core capability for leading futures companies to provide comprehensive services to customers, one of the important sources of income for futures companies, and a necessary path for the transformation and upgrading of futures. Under the background of the dual development of international business, the company will continue to fulfill its mission, adhere to steady progress in international business, and continuously improve and innovate. Risk management services have been a highlight of the performance of many futures companies in the first half of the year.Ruida Futures' operating profit from risk management business in the first half of the year was 660 million yuan, turning a loss of 350 million yuan in the same period last year into a profit. Among this, the revenue from risk management business was 703 million yuan, a year-on-year increase of 167.1%, mainly due to the significant growth in the scale of basis trade business. In the second quarter, Yong'an Futures achieved dual growth in both the scale and profit of risk management business.

Data from the Futures Association shows that in the first half of the year, futures risk management companies cumulatively achieved a total operating income of 113.519 billion yuan, a year-on-year increase of 4.7%; net profit was 853 million yuan, a year-on-year increase of 6.9%. Among them, in June of this year, futures risk management companies achieved a net profit of 770 million yuan in a single month.

Luo Xuefeng, Chairman of Nanhua Futures, stated that with the implementation of the adjustments to the "Administrative Measures for Futures Companies," futures operating institutions should further base themselves on serving the real economy, achieve comprehensive capabilities in connecting futures and spot markets, domestic and foreign markets, and on and off-exchange markets, and provide professional, industrial, and international services to the market.

Regarding the operation in the second half of the year, Wang Lin, Assistant General Manager of COFCO Futures, said that on the one hand, the company should base itself on its advantages and continue to provide good industrial services; secondly, focus on key points and cultivate new varieties; and thirdly, improve management and perfect the service system.