Structured products sales boost Huatai Securities net profit

Huatai Securities’ net profit has grown by 4.6% to CNY2.5 billion (US$375.5m) in the third quarter – year-to-date, the firm has reported a net profit of CNY8.9 billion, up 37.8% year-on-year (YoY). 

The Nanjing-headquartered securities firm issued and distributed 126 structured products with strike dates between April and June, compared with 215 products issued from January to March, SRP data shows.

However, the Chinese firm racked up CNY1.3 billion in Q2 20 - driven by four autocallable notes with a knock-in and knock-out (KIKO) option for institutional investors - higher than the CNY784.7m sales volume of the previous quarter.

The four capital at risk one-year notes - 鑫益20052, 鑫益20055, 鑫益20056, 鑫益20054 – are all tied to the CSI 500 index and sold CNY200m, CNY196m, CNY196m and CNY195m, respectively.

In contrast, the best-sold products in Q1 are two one-year autocallable principal-guaranteed products also tied to the CSI 500 - 晟益20007 and 晟益20027 - with a sale volume of CNY51.8m and CNY50.5m, respectively.

The main investor in both products is Beijing-based Staidson Biopharmaceuticals, which subscribed CNY50m for each tranche, according to a corporate statement from Shenzhen Stock Exchange. The floating coupon for the 晟益20007 structure is between 0.1% and 5.6% and between 0.1% and 5.85% for the 晟益20027 tranche – in addition both products offer a fixed coupon of 0.1%. 

During Q2, the most featured underlyings on Huatai’s products were the S&P 500 and CSI 300 besides the CSI 500. The firm also launched six principal-protected products tied to automobile equity baskets, seven to technology equity basket, one to cloud computing equity basket.

The only product linked to the Dow Jones Industrial Average (DJIA) issued by the firm, the 寰益20067, was sold at CNY0.2m and had an investment term of three months with full capital protection. 

The firm reported that 113 out of the 126 products marketed in Q2 had full principal protection while the remainder provided no protection to investors.

Chinese regulators have gradually prohibited commercial banks from supplying principal-protected structured notes as part of their ‘wealth management products’ schemes, which has largely popularized structured deposits – the only form of structured product with capital protection available for Chinese retail investors since mid-2018, SRP reported. 

However, principal-protected wealth management products, which have traditionally been used by Chinese investors, can still be issued by securities firms. These structured notes are called ‘beneficiary certificates (收益凭证)’ instead.

In terms of payoff types, the autocallable structure remains the most used with an option of KIKO or knockout during the first two quarters of 2020, followed by call spreads, sharkfins and digitals.

Huatai Securities is with Citic Securities and Guotai Junan Securities one of the leading securities houses involved in the Chinese derivatives market, according to the Securities Association of China.

Balance sheet

Net fee and commission income in Q3 rose by 88.2% to CNY4.5 billion mainly due to ‘the increase in the fee income from brokerage business and investment banking business’ while net interest income doubled to CNY781.5m YoY.

On-balance sheet, derivative assets were up 78.3% to CNY3.3 billion while derivative liabilities surged 3.8X to CNY6.1 billion as at 30 September YoY.

Trading liabilities doubled to CNY14.7 billion as at 30 September as a result of ‘increase in structured notes of subsidiaries’ YoY. 

Total operating expenses increased by 57.2% to CNY5.7 billion YoY where other asset impairment losses saw the highest jump - up 3X to CNY9.7m YoY – bringing the total for the nine months to CNY16m, up 43.7X YoY due to ‘increase in impairment allowance of fixed assets and intangible assets of subsidiaries’.  

Click here to view the 3Q report.