Capital Securities offers limited value in crowded brokerage field

The company aims to become China’s 14th dual-listed brokerage with its planned Hong Kong IPO, even though its small size could dampen its appeal

Key Takeaways:

• Capital Securities has filed to list in Hong Kong, reporting its profit in the first half of this year increased just 2.8% despite much bigger gains for its larger rivals
• Hong Kong shares of dual-listed smaller brokers like Capital Securities commonly trade at discounts of 40% or more to valuations for their Shanghai and Shenzhen stocks

By Cheng Shui Tong

China’s securities sector is a bloody battlefield, with dozens of brokers large and small competing for a limited pool of investors. Within that jungle, the smaller Capital Securities Corp. Ltd. (601136.SH) is trying to convince Hong Kong investors why its worthy of their dollars – a potentially tough sell as it submitted its listing application earlier this month into one of the hottest Hong Kong IPO markets in years.

The company is hardly a titan in its field. Its listing application shows it ranked 28^th among China’s 42 brokerages listed in Shanghai and Shenzhen last year in terms of revenue and profit. Its growth trajectory was stronger, with the company recording the fifth-fastest growth for average annual revenue and 10^th fastest for profits between 2022 and 2024. Most notably, the company claimed the top spot among its peers for return on average total assets (ROAA).

Capital Securities’ profit has also climbed steadily, nearly doubling from 550 million yuan ($77 million) in 2022 to 985 million yuan last year. But the momentum slowed sharply this year, as its 490 million yuan profit for the first half of 2025 was up just 2.8% year-on-year. It attributed the sudden slowdown to pressure on its asset management division, as performance-related fees declined due to bond market volatility. That was partly offset by a solid upturn in investment income driven by stock market gains.

Asset management unit shines

Capital Securities derives revenue across four key segments: asset management, investment, investment banking, and wealth management. Its asset management business stands out as a star performer. Despite industry-wide pressures that shrank that part of the brokerage services market in China to 5.5 trillion yuan in 2024 from 8 trillion yuan in 2020, Capital Securities managed to achieve significant growth. Specifically, its assets under management surged from 107.3 billion yuan at the end of 2022 to 165.5 billion yuan by the middle of this year.

The company charges a base management fee typically between 0.45% and 0.55% of assets under management, which provides relatively stable income. Additionally, it charges performance fees ranging from 0.15% to 0.65%, which are more volatile because they are tied to investment performance that can vary widely.

Within its investment businesses, only fixed-income investment and trading has delivered stable returns in recent years. The comprehensive rate of return for such investments has typically varied between 8% and 10%, and was notably high at 9.76% in the first half of 2025. By comparison, its equity securities investment performance was volatile. Its equity holdings totaled 405 million yuan in 2022, 281 million yuan in 2023, and 2.17 billion yuan in 2024, providing returns of -3.73%, 0.5%, and -0.27%, respectively, over that time. As China’s stock markets boomed this year, the company’s equity holdings surged to 5.5 billion yuan by this June, with the rate of return climbing to 4.72%.

But its relatively small size limits Capital Securities’ participation in the investment banking services realm. In the first half of 2025, investment banking revenue accounted for only 5.1% of its total, as its larger peers were more likely to benefit from a booming market for new listings in Hong Kong and, to a lesser extent, in Shanghai and Shenzhen.

Tied to domestic market sentiment

Domestic brokerages are heavily dependent on the stock market performance in Shanghai and Shenzhen, since much of their revenue comes from fees for trading, which tends to be higher when markets are strong. That’s resulted in stagnation for many brokerages in the last few years due to anemic stock market performance.

That’s reflected in the near-zero growth rate for the domestic securities market size from 2020 to 2024, with the market averaging only 0.1% annual growth over that time. The Shanghai Composite Index surged earlier this year, starting from 3,400 in mid-June and rising to 3,800 points by August. But it has moved sideways more recently amid concerns over the China-U.S. trade war, with brokerage stocks undergoing a deeper correction than the broader market.

Among the 42 brokerage firms currently listed on domestic markets in Shanghai and Shenzhen, 13 are also listed in Hong Kong. The last securities stock to achieve such a dual listing was Shenwan Hongyuan (6806.HK), though that was back in 2019. Capital Securities would become the 14^th, ending a six-year drought for such listings.

Capital Securities has been operating cash flow negative for the last few years, reporting operating cash outflows of 313 million yuan in 2023 and 1.971 billion yuan last year, though the outflow moderated to 120 million yuan in the first half of this year. Its cash at the end of 2024 stood at 2.65 billion yuan, down 12.6% year-on-year. The figure dropped sharply this year, landing at 1.8 billion yuan by the end of June. Funds raised from a Hong Kong listing could help the company expand its asset scale, maintain its liquidity, and continue developing its margin trading and securities lending business, which would strengthen its position in the highly competitive market

Strong stock gains

Capital Securities was founded in 2000 and is controlled by the Beijing State-owned Assets Supervision and Administration Commission through its state-owned parent, Beijing Capital Group. The company listed on the Shanghai Stock Exchange in 2022 and its market value has doubled to approximately 60 billion yuan since then. Its stock is down slightly year-to-date, but trades at relatively lofty ratios of 59 times for price-to-earnings (P/E), and 4.5 times for price-to-book (P/B).

Among the 13 securities firms currently dual listed in Hong Kong and on one of China’s domestic markets, Hong Kong-listed shares of larger players like Citic Securities (6030.HK; 600030) and Huatai Securities (6886.HK; 601688.SH) currently trade at relatively modest discounts of 6.3% and 14.8%, respectively, to their domestic counterparts. However, smaller brokers such as Orient Securities (3958.HK; 600958) and Central China Securities (1375.HK; 601375.SH) trade at steeper discounts of 40% and 47%. Given Capital Securities’ position as a mid-sized brokerage in the domestic market, its Hong Kong listing valuation would likely require a similarly substantial discount compared to the multiple for its Shanghai-listed stock.

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