Soochow Securities—Brokerage Supplemented with Investment Banking, Firm Regional Foothold, and Nationwide Exploration

Soochow Securities, formerly known as Suzhou Securities, is a securities company with regional dominance in Suzhou. It does not stand out in the industry in terms of its overall strength. In 2011, Soochow Securities held the following rankings out of the 107 securities companies in China: thirtieth in business revenue, thirty-first in net asset, thirty-second in net profit, twenty-fourth in brokerage revenue, twenty-sixth in investment banking revenue, and thirty-fifth in proprietary business revenue.

However, as a regional and specialized securities trader, Soochow Securities differentiated itself in the industry with some distinctive features. It had typical Soochow characteristics. In terms of the number of operations, the company had the most operations in the Suzhou region with 22. It comfortably enjoyed the largest share of the brokerage business in Suzhou. According to data disclosed by the company, the market share of the company reached over 45 percent in 2010. Soochow Securities owned 7 of the top 10 operations in the Suzhou region.

With these distinctive features, the brokerage business was persistently responsible for a large portion of the company's revenues. According to available data, even in 2011 when the investment banking business was growing rapidly and the brokerage business was shrinking dramatically, brokerage still accounted for 50 percent of the company's total income. That figure was as high as 96.7 percent in 2008.

In comparison to CITIC Securities, Figure 4.24 shows Soochow Securities' distribution pattern; and in contrast, Figure 4.25 shows its transaction volume relative to the other major securities firms.

Thanks to its firm foothold in Suzhou, Soochow Securities enjoyed great competitive advantages and certain monopoly in the brokerage securities business in the entire Suzhou region. Since 2006, Soochow Securities made an effort to thoroughly tap into the Suzhou market and expand its presence

FIGURE 4.24 Distribution Pattern of Soochow Securities' Proprietary Business

FIGURE 4.25 Total Transaction Volumes of Soochow Securities (equity fund) in the Soochow Region since 2006

Source: Wind Information Co., public information of the company, iFinD Database.

FIGURE 4.2G Percentage of Securities Brokerage in the Total Revenue in Soochow Securities

Source: Wind Information Co., public information of the company, iFinD Database.

FIGURE 4.27 Percentage of Securities Investment Banking in the Total Revenue in Soochow Securities

Source: Wind Information Co., public information of the company, iFinD Database.

FIGURE 4.28 Percentage of Return-from-Investment in the Total Revenue in Soochow Securities

Source: Wind Information Co., public information of the company, iFinD Database.

in regional markets in Jiangsu. As a result, the brokerage business constantly made up 50 percent to 96.7 percent of its revenues.

Based on the vibrant regional economic atmosphere in Suzhou in recent years, Soochow Securities started focusing on the development of high quality regional enterprises as potential targets for public listing sponsor services. In 2010, the percentage of the underwriting business in the total revenue exceeded 10 percent for the first time. By the first half of 2011, the percentage had risen to 33.3 percent.

According to a list of companies whose IPOs were sponsored by Soochow Securities since 2006, a majority of them were based in the areas covered by the operations of Soochow Securities. Of the 16 companies whose IPOs were sponsored by Soochow since 2006, 13 (81 percent) were based in the Yangtze River Delta, 11 (69 percent) were based in Jiangsu province, and 3 (20 percent) were based in Suzhou.

Because regionalized brokerage business and investment banking business are the cornerstone of the development of Soochow Securities, the growth of its asset management business and investment business is relatively slow. According to data disclosed by the company, during the period 2008 to 2010, equity and derivative-related proprietary business only involved 17 percent of the company's net capital, far below the 45 percent level of the average securities trader. The asset management business is still in its infant stage. According to statistics from Wind Information Co., as of 2011, when Soochow Securities went public, it had only two asset management products with a total net asset value of less than CNY 500 million, ranking in the middle among over 100 securities traders in China.