Spark Global Limited reports:
Since the beginning of this year, with the price of bulk commodities, related enterprises have chosen futures hedging, futures companies also seem to be entering the industry pro-cycle.
On July 5, China Futures Industry Association released the operation situation of futures companies from January to May. 149 futures companies achieved a turnover of 238.48 trillion yuan in the first five months of this year, an increase of 77.97% on a year-on-year basis. Net profit was 4.721 billion yuan, up 120.30% year on year.
Among them, bibcock futures company performance growth is more swift and violent. On the evening of July 13, one of the few A-share listed futures companies – Ruida futures (002961.SZ) released A forecast for the results of the first half of 2021, it is expected that the net profit attributable to the shareholders of the listed company in the first half of the year is 225 million yuan ~ 255 million yuan, A year-on-year growth of 215.23%-257.26%.
Ruida futures’ expected increase figure not only exceeds the first half of the first quarter’s expected net profit of 150 million to 215 million yuan, but also is close to the annual profit of 249 million yuan in 2020. On July 15, Time Finance contacted the secretary office of the board of directors of Ruida Futures, but the staff of Ruida Futures said they could not accept an interview before the official report was released.
When Time Finance called South China Futures (603093.SH), another A-share listed futures company, on July 16, A staffer responded that the company would not give advance notice to the interim report, and the official interim report is expected to be released on August 20.
Image credit: Unsplash
In the A stock market, securities stocks are often seen as the market “vane” attracting attention. In contrast, South China futures and Ruida futures are little attention. Hong Ye Futures (3678.HK) and Luzhen Futures (1461.HK), which are listed in Hong Kong, are even less attractive to investors, with their share prices consistently below HK $1 and trading volume thin.
At present, this year’s futures company performance increase is A forego, there are A number of futures companies are queuing up to impact A share IPO, secondary market futures companies can attract more attention from investors?
Futures companies transform asset management
From the industry as a whole, the main revenue and profit of futures companies still come from futures brokerage business.
On July 16, China fortune securities analyst 愻 cao chuan told financial times, the rapid growth of the futures company’s performance in more than a year, on the one hand, because companies need to hedge risk, in the outbreak of epidemic to deal with commodity prices after hedging demand growth, on the other hand, in recent years, the domestic futures varieties new speed, drive the futures brokerage company growth significantly.
Since 2020, affected by the COVID-19 epidemic, the global financial market has become more volatile, the price of some bulk commodities has fluctuated significantly, and the demand of enterprises for hedging has increased. Many enterprises choose futures as a hedging tool.
In the recent interim announcement, Ruida Futures also attributed the sharp rise in performance to the volatility of commodity prices, the continued increase in corporate hedging needs and wealth management allocation needs, as well as the increase in trading volume in the futures market.
According to the previously disclosed 2020 annual report, Ruida Futures achieved annual revenue of 647 million yuan from its risk management business in 2020, higher than the 599 million yuan revenue from its futures brokerage business in the same period.
In addition, asset management business has become an increasingly important profit point for futures companies. Both Nanhua Futures and Ruida Futures pointed out in their 2020 annual reports that some futures companies are transforming to integrated services, based on brokerage business and with risk management and asset management business as two wings.
Gan Canrong, a guest lecturer at CME Group, told Time Finance on July 16 that the business model of futures companies is changing from pure brokerage business to over-the-counter business and wealth management business, which can expand the revenue of futures companies.
According to the China Futures Industry Association, the asset management revenue of futures companies increased tenfold from 87 million yuan in 2014 to 897 million yuan in 2020.
Photo Source: China Futures Industry Association
The asset management business of futures companies is different from that of traditional brokerages. Cao 愻 Chuan pointed out that futures companies have a deep understanding of the relevant industrial chain and can better use CTA (managed futures) strategy for asset management.
The so-called CTA strategy refers to an investment strategy that makes use of the trend of futures prices to gain profits in the futures market. Since the futures market can be both long and short and has the advantage of T+0 trading efficiency, the CTA strategy has the opportunity to catch the market both up and down as long as market volatility exists.
The scale of asset management of futures companies is growing rapidly. According to the statistical data released by China Futures Industry Association, the scale of asset management products of commodities and derivatives under the management of futures companies and asset management subsidiaries was 16.845 billion yuan by the end of 2020.
Among them, the asset management scale of Ruida Futures was only 153 million yuan in 2018, and reached 21.2 billion yuan in 2020, which increased nearly 14 times in three years. Revenue from asset management business also increased eightfold from 12 million yuan in 2018 to 99 million yuan in 2020.
Cao 愻 Chuan believes that asset management, like risk management, will gradually become an important part of futures companies’ business.
The secondary market is not yet hot
In spite of the gains made by futures companies this year, the share prices of two futures companies on the A-share market suggest that investors are generally uninterested in them.
From the start of the year to the close of July 16, Ruida Futures and South China Futures fell 13.22 percent and 23.16 percent, respectively, compared with a 2.24 percent decline in the CSI 300 index. Both futures firms have significantly underperformed the broader market.
Gan Canrong told Times Finance, “Compared with securities companies, futures companies are too small and their business model is relatively simple. From a purely operational point of view, the performance growth of futures companies is difficult to be as flexible as the performance of securities companies — the securities market is prone to a sharp increase in trading volume in a bull market, and futures due to leverage and long-short trading characteristics, the timeliness of performance elasticity is not so obvious, performance growth is easy to estimate.”
Cao 愻 Chuan said that on the one hand, the futures industry itself market is too small, the market attention is not enough, on the other hand, investors do not recognize the futures company’s current business model – too dependent on the exchange’s transaction fee return, the lack of performance growth imagination space.
A-share investors seem uninterested in futures companies, and the H-share market is even less “friendly” to futures companies.
On July 16, Hongye Futures and Luzhenfutures closed at only HK $0.93 and HK $0.51, and the corresponding dynamic price-earnings ratio was 10.704 times and 7.567 times. On the same day, A-share South China Futures and Ruida Futures closed at 14.13 yuan and 20.57 yuan respectively, corresponding dynamic price-earnings ratio of 88.4 times and 29 times, far higher than the peers listed in H shares.
Hongye Futures announced on June 29 that it had submitted the application materials, including the A-share prospectus, to the China Securities Regulatory Commission (CSRC), and that the CSRC had accepted the application on June 28.
If successful, Hongye Futures will become the first A+H listed company in the futures industry. On July 16, Time Finance called the Secretary Office of the Board of Directors of Hongye Futures for several times to inquire about the relevant progress, but no one answered the phone.
Stivated by the news of A-share listing plan, the stock price of Hongye Futures has been greatly stretched since June 30, and even broke through the “mark” of HK $1 once on July 14.
Hong ye futures price trend. Photo credit: Wind
Cao 愻 Chuan believes that the current financing environment of A shares is relatively good, futures companies can obtain A higher valuation relative to the Hong Kong market in A shares, so futures companies hope to obtain funds from the A-share listing to further develop the business.
Times finance and economics found that at present in the A-share queue listed futures company A total of 4, in addition to Hongye futures, Yongan futures has now entered the “on-site inspection” stage, the new lake futures and Shanghai mid-term is still in the guidance period.
At the same time, China mid-term (000996.SZ) also released the revision of the major asset reorganization plan in the evening of May 6, once again trying to transition to the futures business. Whether China Medium-Term’s plan to merge China International Futures, which dates back to 2008, will succeed this time is unclear.
Although the whole futures industry is gradually entering the boom period, futures companies have to transform into integrated service providers, but how to tell the shareholders a good story of “how to make more money”, is all the futures companies that have been listed or are going to be listed need to think about the problem.
Reprint indicated source：Spark Global Limited information