Guotai Haitong's first annual report after the merger is released! Over 8 billion in negative goodwill supports profits, while overseas operations face multi-faceted pressure

March 28, 2026, Cathay Haitong (601211), which has drawn significant attention from the market, released its first merged annual report. The data show that this China securities-industry “new mega” delivered an impressive set of results in 2025 with both scale and profit up year over year: operating revenue was RMB 63.107 billion, up 87.4%; and net profit attributable to shareholders was RMB 27.809 billion, up 113.52%.

However, behind these record-high performance figures lies structural concern that cannot be ignored. Cathay Haitong’s profit growth depends to a large extent on the massive “negative goodwill” generated from the merger of Haitong Securities, which is a non-recurring gain/loss. If that factor is stripped out, the company’s growth rate in non-GAAP net profit is far lower than the superficially impressive numbers. Meanwhile, credit impairment losses surged by more than 14 times year over year, mainly attributable to historical risk exposure stemming from Haitong Securities’ finance leasing business assumed after the merger. Even more worrying for the market is that Haitong International, which had once served as Haitong Securities’ “overseas bridgehead,” has not fully cleared its legacy risks; and the Hong Kong ICAC investigation event that Cathay Chief King International (01788) has recently been drawn into has further cast a shadow over the company’s international expansion journey.

“Negative goodwill” makes wealth; growth lacks substance

On the surface, Cathay Haitong’s 2025 net profit attributable to shareholders grew as much as 113.52%, placing it among the top listed brokerages. However, behind this eye-catching figure, the main driver is not an extraordinary performance of its core business, but rather a “one-off dividend” brought by accounting standards. According to the company’s 2025 performance forecast and annual report notes, during the process of absorbing and merging Haitong Securities, because the purchase cost was lower than the fair value of the net assets of the acquiree that could be identified, the company recognized negative goodwill of RMB 8.827 billion and recorded it in non-operating income. This non-recurring item of profit and loss therefore also supported net profit attributable to shareholders.

After excluding this impact, the company’s 2025 non-GAAP net profit attributable to shareholders was RMB 21.388 billion, up 71.93% year over year. Although this growth rate remains attractive within the industry, compared with the 113.5% increase in net profit attributable to shareholders, it creates a “gap” of nearly 42 percentage points. This data indicates that without the “cosmetic” effect of negative goodwill, the growth of the company’s annual report profits would be greatly “reduced.”

It is also worth noting that after the non-GAAP adjustment, the company’s weighted average return on equity (ROE) in 2025 was 7.49%, down 0.26 percentage points year over year. This means that although after the merger the company’s asset scale and net profit expanded significantly, its actual ability to generate returns for shareholders from its core business has in fact declined slightly, and pressures of “growing revenue but not efficiency” at the initial stage of integration have begun to show.

Credit impairment surges 1,445%; risk assumed in finance leasing

The annual report shows that in 2025 Cathay Haitong’s credit impairment losses saw astonishing growth. In the fourth quarter (10–12 months) alone, the company recognized credit impairment losses of RMB 1.604 billion; for the full year, the total recognized impairment amount reached RMB 3.863 billion, up as much as 1,445% from the same period last year. Such a huge impairment provision directly reduced the company’s profit for the period. The core reason for this abnormal fluctuation lies in the finance leasing business newly added after the merger of Haitong Securities. In its announcement, the company clearly explained that the newly recognized credit impairment losses on long-term receivables and receivables from finance leasing, were mainly caused by the absorption of and merger with Haitong Securities.

Specifically, Haitong Securities’ Haitong Hengxin (01905) is a leading finance leasing company in China. Before the merger, Haitong Securities found itself mired in difficulties due to heavy exposure to US dollar bonds of real estate issuers and other high-risk projects, and its finance leasing segment also faced significant asset quality pressure. After Haitong Securities was incorporated into Cathay Haitong’s statements in 2025, these historical legacy risk assets began to emerge, leading to a sharp escalation in credit impairment losses.

Although the company emphasized in its announcement that “the leasing business is developing steadily and asset quality is robust and controllable,” from the financial data, only the two items of long-term receivables and receivables from finance leasing together accounted for impairment provisions of about RMB 889 million in the fourth quarter alone. This suggests that while Cathay Haitong has completed a financial consolidation of statements, the digestion of the “non-standard” asset risks left behind by Haitong Securities has only just begun.

Haitong International’s old wounds not healed; Cathay Jun’an International investigated again

As domestic business integration progressed, Cathay Haitong not only inherited Haitong Securities’ asset scale, but also fully took over the huge risk exposures of its overseas business. As a result, the company’s overseas operations after the merger are facing severe challenges on both compliance and business operations.

Haitong International was once an important platform for Haitong Securities to go overseas. However, in 2022 and 2023, due to heavy exposure to offshore US dollar bonds of PRC property developers, Haitong International suffered losses of more than RMB 10 billion over two years, and was ultimately privatized and delisted. Although in its 2025 annual report, Cathay Haitong’s chairman Zhu Jian said “remarkable results” were achieved by mitigating risk exposures and reducing liabilities, overseas market volatility and legacy low-quality assets may still become “earnings bombs” in the future.

A bigger shock came from the compliance front. On March 10, just before the annual report was released, the Securities and Futures Commission of Hong Kong and the Independent Commission Against Corruption (ICAC) launched a joint operation codenamed “Fuse,” conducting raids on multiple financial institutions including Cathay Jun’an International. According to the announcement, Pan Jupeng, the head of ECM (equity capital markets) at Cathay Jun’an International, was detained by the ICAC on suspicion of insider dealing and bribery. The case details state that senior executives of the broker involved were suspected of receiving bribes of more than RMB 4 million, leaking confidential information before the publication of share allotment details, and assisting hedge funds in profiting by approximately HKD 315 million through short selling.

This incident has had an extremely far-reaching impact on Cathay Haitong. Cathay Jun’an International was the most mature platform for Cathay Haitong’s internationalization and held an important position in Hong Kong’s IPO market. Pan Jupeng himself also participated in IPO projects of major companies such as CATL (Ningde Times). With the investigation of the head of the core department, it not only exposed loopholes in the group’s overseas branch internal control and compliance, but may also trigger regulators to re-examine the group’s overseas business licenses.

Post-merger pay per employee rises significantly

The 2025 annual report shows that the total executive compensation paid by Cathay Haitong was RMB 13.2127 million. Compared with RMB 10.8724 million during Cathay Jun’an’s period in 2024, this was higher. Of this, Chairman Zhu Jian’s compensation was RMB 9.095 million, slightly up from last year’s RMB 8.676 million; President Li Junjie’s compensation was RMB 7.50 million, basically unchanged from last year’s RMB 7.546 million. In addition, compared with the RMB 15.22 million high salary paid in 2024 to Zhang Zhihong as chief auditor, Zhao Hong, who served as chief auditor in 2025, received only RMB 12.058 million. Some other executives’ compensation was also less than RMB 7 million.

On a per-employee basis, benefiting from the scale effect after the merger, pay per employee increased compared with 2024. The annual report shows that in 2025 Cathay Haitong paid RMB 16.077 billion in cash to employees; at period end, payable employee compensation was RMB 11.23 billion; and the number of employees was 26,228. Based on calculations, compensation per employee was approximately RMB 9.44 million. Compared with the per-employee compensation of RMB 7.097 million for Cathay Jun’an in 2024, this represented an increase of 33.01%.

Overall, 2025 was a “big year” for Cathay Haitong to achieve an initial “1+1>2” effect in terms of asset scale. However, looking through the glossy financial statement data, it is not hard to see that this newly established industry leader is facing a severe “stress test.” For Cathay Haitong’s management team, 2026 may be an even more challenging year. As the “one-off dividend” from negative goodwill disappears, the company needs to prove that it can maintain growth without financial “filters.” At the same time, how to fully digest the legacy risk assets left behind by Haitong Securities, and how to rebuild compliance systems for the Hong Kong subsidiary, will be key to whether this aircraft-carrier-level brokerage can truly move forward steadily and far.

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