Currently, there are four securities firms with IPO applications under review in the A-share market, namely Dongguan Securities, Caixin Securities, Hualong Securities, and Bohai Securities.

Performance continues to decline, with a 18% pay cut for employees

Performance is one of the important indicators that determine whether a company planning to go public can successfully enter the capital market. The revised listing rules after this amendment have moderately increased the financial threshold for the main board while also emphasizing the stability of the operating performance of companies planning to go public.

Looking at the prospectus, Dongguan Securities' revenue and net profit have been declining for two consecutive years, and this trend has spread to 2024.

2021 was the peak year for Dongguan Securities' performance, when the company achieved a revenue of 3.701 billion yuan and a net profit attributable to the company of 996 million yuan, respectively, a year-on-year increase of 16.94% and 27.45%.

In 2022, the performance of Dongguan Securities began to decline, with a year-on-year decrease of 37.88% in revenue and 20.61% in net profit attributable to the company; in 2023, both continued to decline, with a year-on-year decrease of 6.26% in revenue and 19.70% in net profit attributable to the company.

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According to the latest data disclosed by Dongguan Securities: in the first quarter of this year, Dongguan Securities achieved a revenue of 445 million yuan, a year-on-year decrease of 16.96%; net profit after deducting non-recurring gains and losses was 125 million yuan, a year-on-year decrease of 34.85%. Dongguan Securities expects the revenue for the first half of the year to decrease by 10.20% to 0.75% year-on-year; net profit attributable to the company is expected to decrease by 19.00% to 10.47% year-on-year.

In this regard, Dongguan Securities stated that the decline in performance in 2024 was partly due to the reduction in the number of projects and the scale of fundraising, resulting in a decrease in the net income from investment banking fees compared to the same period last year; on the other hand, it was affected by the fluctuations in the A-share market, resulting in a decrease in the investment income and fair value changes in profit and loss compared to the same period last year.

At present, under the background that investment banking, brokerage, proprietary trading and other businesses are facing challenges, the performance of securities firms is under pressure. Recently, 22 securities firms in the A-share market have disclosed their performance for the first half of 2024, among which, 16 have seen a decline in net profit.

Recently, there has been a continuous wave of pay cuts in the financial industry. In fact, for the securities industry, pay cuts have been going on for two years, and Dongguan Securities, which has been showing a continuous decline in performance, is no exception.The prospectus indicates: In 2022, the average compensation of Dongguan Securities' employees was 261,100 yuan/year, which dropped to 214,900 yuan/year in 2023, a decrease of 17.7%. Among them, the average compensation for investment banking employees in 2023 was 549,000 yuan/year, with a year-on-year decrease of 13.42%.

Only 3 IPO projects were completed in 2023.

Brokerage business is the foundation of securities companies. During the reporting period (from 2021 to 2023, the same below), the net income from brokerage business of Dongguan Securities was 1.224 billion yuan, 1.002 billion yuan, and 897 million yuan, respectively, showing a continuous decline, with a decrease of 18.13% in 2022 and 10.50% in 2023.

The brokerage business is highly related to the volume of securities transactions and the level of transaction commission rates. On the one hand, since 2022, the transaction volume of A-shares has continued to decline; on the other hand, with the intensification of industry competition, the average commission rate of the securities industry has shown an overall downward trend. During the reporting period, the average commission rate of Dongguan Securities was 0.257‰, 0.234‰, and 0.223‰, respectively, with a significant decline.

The largest decline was in investment banking business. During the reporting period, the net income from investment banking business of Dongguan Securities was 371 million yuan, 266 million yuan, and 199 million yuan, respectively, with a year-on-year decrease of 28.48% in 2022 and 24.92% in 2023.

From 2019 to 2023, Dongguan Securities has sponsored a total of 20 companies' IPOs, such as Lianrui New Materials, Little Bear Electric Appliances, and Kabillion, etc. Among them, only 3 IPO projects were completed in 2023.

This year, the allocation structure of proprietary business has become a watershed for the performance of securities companies. A lower proportion of equity asset allocation and a higher proportion of fixed-income asset allocation can often give securities companies some room for performance.

From the prospectus, it can be seen that in the past three years, Dongguan Securities has also been moving in this direction: significantly reducing the scale of equity assets and increasing the scale of fixed-income securities.

At the end of each reporting period, the scale of proprietary equity securities of Dongguan Securities was 711 million yuan, 1.555 billion yuan, and 728 million yuan, respectively, among which, the scale of proprietary equity securities at the end of 2023 decreased by 53.2% compared to the end of the previous year. Meanwhile, during the same period, the scale of proprietary fixed-income securities of Dongguan Securities was 13.264 billion yuan, 17.925 billion yuan, and 20.744 billion yuan, respectively, showing an upward trend year by year.

The adjustment of the allocation structure of proprietary business has also made the proprietary business the only module among the 9 business modules of Dongguan Securities that has continued to grow.The Undecided 40% Stake

Apart from performance, Dongguan Securities is currently facing the embarrassment of significant shareholder changes, and whether this will affect the IPO process remains to be observed.

The actual controller of Dongguan Securities is the Dongguan Municipal State-owned Assets Supervision and Administration Commission (SASAC), which indirectly controls 55.40% of Dongguan Securities' shares through Dongguan Holdings, Financial Control Group, and Financial Control Capital.

Jinlong Shares is the single largest shareholder of Dongguan Securities, holding 40% of the shares. Additionally, Jinlong Shares also controls Zhongshan Securities with a 67.78% stake, forming a layout of one participation and one control.

However, in recent years, Jinlong Shares has had a high debt-to-asset ratio and a heavy financial burden. Influenced by factors such as the international environment and the downward trend of the macroeconomy, the company's operating performance has declined and losses have occurred.

To reduce the debt ratio, optimize the financial structure, and improve cash flow and operating conditions, on November 3, 2023, Jinlong Shares announced its intention to transfer 300 million shares of Dongguan Securities, which is 50% of its holdings. On December 1, Jinlong Shares increased the number of shares it intended to transfer to a maximum of 600 million shares, seemingly heading towards a complete divestment of its stake in Dongguan Securities.

At the beginning of this year, this portion of the shares was pre-listed on the Shanghai United Property Exchange. Subsequently, the actual controller, Dongguan Municipal SASAC, began to take action. In March, Jinlong Shares reached a preliminary intention with Financial Control Capital, a subsidiary of Dongguan Municipal SASAC, for 300 million shares and signed a non-binding memorandum of understanding for the transaction. Currently, this deal is still in progress.