Institutionalisation: earnings growth and stability. Two merits come with institutional  clients: (1) institutional clients demand higher flexibility in leverage and hedging, driving  higher volume for margin financing and securities lending (MFSL) and derivative business;  and (2) institutional capital is relatively stable, enhancing earnings stability amid market  cycles. We estimate MFSL balance to grow by 16% to Rmb2.2 tn by the end of FY22E. 

The OTC derivative notional balance is expected to grow by 41%YoY to Rmb2.8 tn. Further,  IBD is expected to experience robust growth as the registration-based IPO system will likely  be implemented on main boards soon. The domestic equity fundraising amount could grow  by 23% YoY to Rmb1.8 tn in FY22E (from Rmb1.5 tn in FY21E), per our estimate.

Asset and wealth management: high margin, low capital consumption. The sector  benefits from the AM&WM business, as: (1) high margin and low capital consumption boost  ROE; and (2) AUM-based fee provides a cushion amid market downturns. We estimate the  AUM of securities companies’ asset management products to reach Rmb6.9 tn by the end  of FY22E, +8% YoY, while mutual funds AUM (excl. ETF-linked) is expected to expand by  20% YoY to Rmb29.9 tn by the end of FY22E. The profit contribution to listed securities  companies from AM&WM business is likely to reach Rmb55 bn in FY22E.