Galaxy representatives attended our Access China conference on Wednesday.
Key takeaways are as follow:
On brokerage, the current industry average commission rate was ~3.9bps,which is still well above the breakeven point. The company believes sector-widecommission rate will continue to decline. Galaxy has a breakeven point of ~2.5bpsand it has been able to achieve a commission rate that is consistently 8-10%higher than industry average since 2014, thanks to its continued improvement inservice diversity and quality.
On investment banking （IB） business, the company recorded 50-60% yoy declinein 9M17 IB fees, mainly dragged by debt underwriting. Moreover, weak marketdemand and intensified competition （and thus lower fee rate） had also contributedto its lower underwriting fees. The company is actively reforming its IB segment.
Key initiatives include: 1） a new management team and new recruits of IB staffs,which have been in place in 2017; 2） introduction of market mechanism with flatmanagement structure; and 3） higher focus on project pipeline, with IPO pipelineintroduced as an important KPI. The company expects improvement in its IBbusiness in 2018, and targets to achieve higher market position in the long run.
On asset management （AM） business, the company recorded strong growth in1H17 and has reached AUM of >Rmb300bn currently. The increase was mainlydriven by entrusted business from both banks and corporates （higher fee rate）。
Although the company proactively moderated AUM growth in 2H17, it was stillable to achieve positive growth （despite a sector-wide decline） thanks to itsrelatively low AUM contribution from channel business. The company expects itsAUM expansion to continue in 2018.
On prop trading business, the size of the company’s equities prop trading assetswas Rmb10bn, and fixed-income assets was Rmb30-40bn （mainly in bondsrated AA and above with relatively short duration of 2-3 years）。 However, thecompany noted a relatively weak prop trading performance in 2017, mainlydue to 1） impacts from bond market volatilities, especially since Oct-17 and 2）below-industry average equity performance on the back of government mandatedinvestments.