Guotai Haitong Securities Co., Ltd. recently released its first half-year report following the absorption merger. Although the company's attributable net profit ranks first in the industry, it only ranks third after excluding non-recurring gains and losses, with a significant gap compared to CITIC Securities.

Since the consolidation was completed on March 14 this year, only the second quarter financial data can demonstrate whether 1+1 is greater than 2. Unfortunately, GTHT's second quarter revenue of RMB 12.099 billion was nearly RMB 1.1 billion less than the combined revenue of Guotai Junan and Haitong Securities before the merger last year. Meanwhile, leading securities firms such as CITIC Securities, China Galaxy, and Huatai Securities all reported substantial growth in both second quarter revenue and net profit. Judging solely from second quarter revenue, the absorption merger has not yet achieved "1+1>2."

**Q2 Single Quarter Revenue Declines Year-on-Year, Q1 Net Profit Surge Largely "Paper Wealth"**

In the first half of this year, GTHT achieved operating revenue of RMB 23.872 billion, up 77.71% year-on-year; attributable net profit of RMB 15.737 billion, up 213.74% year-on-year; and non-GAAP attributable net profit of RMB 7.279 billion, up 59.76% year-on-year.

Among 42 pure securities business brokerages, GTHT's first half revenue ranked second in the industry, trailing only CITIC Securities; its attributable net profit ranked first in the industry.

Judging from these figures alone, GTHT's post-merger report card appears impressive. However, it's noteworthy that GTHT's non-GAAP attributable net profit ranks third, as the company generated nearly RMB 8 billion in non-recurring gains and losses from the absorption merger, which is merely book wealth.

Moreover, GTHT's second quarter revenue of RMB 12.099 billion was nearly RMB 1.1 billion less than the combined revenue of pre-merger Guotai Junan and Haitong Securities last year, making it difficult to demonstrate good synergistic effects post-merger.

Since GTHT completed consolidation on March 14 this year, only second quarter financial data can prove whether 1+1 is greater than 2. Wind data shows that in Q2 2024, original Guotai Junan achieved revenue of RMB 9.087 billion while original Haitong Securities achieved RMB 4.103 billion, totaling RMB 13.19 billion, which is RMB 1.091 billion higher than Q2 2025's RMB 12.099 billion.

More importantly, most leading securities firms saw year-on-year growth in both Q2 2025 revenue and net profit. For instance, CITIC Securities achieved Q2 revenue of RMB 15.278 billion, up 11.69% year-on-year, and attributable net profit of RMB 7.174 billion, up 27.85% year-on-year. China Galaxy achieved Q2 revenue of RMB 6.189 billion, up significantly by 123.56% year-on-year, and attributable net profit of RMB 3.472 billion, up 25.96% year-on-year. Huatai Securities achieved Q2 revenue of RMB 7.987 billion, up 27.30% year-on-year, and attributable net profit of RMB 3.907 billion, up 29.39% year-on-year.

With leading securities firms posting Q2 revenue and net profit growth, why did GTHT's Q2 revenue fall short of the pre-merger sum of Guotai Junan and Haitong?

In fact, GTHT's first quarter net profit was also highly controversial. In Q1 this year, GTHT achieved attributable net profit of RMB 12.242 billion, but non-recurring gains and losses reached RMB 8.949 billion, with non-GAAP attributable net profit of only RMB 3.293 billion.

Among GTHT's RMB 8.9 billion in non-recurring gains and losses, the main component was negative goodwill of RMB 7.964 billion generated from absorbing and merging Haitong Securities, reaching nearly RMB 8 billion.

Research indicates that negative goodwill forms when the purchase cost in enterprise mergers or acquisitions is lower than the fair value difference of the acquired enterprise's identifiable net assets, essentially representing a "bargain purchase gain." This means original Guotai Junan's cost of absorbing and merging Haitong Securities was less than Haitong Securities' fair value of identifiable net assets, indicating Guotai Junan acquired Haitong Securities at a relatively "bargain" price.

However, investors should note that negative goodwill neither generates cash flow nor brings substantial operational impact—it's merely "book wealth" formed through accounting treatment.

**How to Address "1+1<2"?**

Judging solely from second quarter revenue, Guotai Junan's absorption and merger of Haitong Securities has not achieved "1+1>2."

From securities firm M&A history, some brokerages generated good synergistic effects post-merger, while others experienced lengthy integration struggles. For example, the merger of Shenwan and Hongyuan Securities experienced a prolonged and painful integration period.

Research suggests that Shenyin Wanguo and Hongyuan Securities failed to achieve 1+1>2. Shenyin Wanguo had strong brokerage business, ranking 8th in the industry in 2013, while Hongyuan Securities excelled in asset management and underwriting sponsorship, ranking 3rd and 7th respectively. Their complementary advantages led to improved asset scale and profitability rankings post-merger, significantly enhancing industry position. However, from market share perspective, Shenwan Hongyuan's 2015 operating revenue and net profit market share were 4.1% and 4.1% respectively, while the combined 2013 Shenwan + Hongyuan market share was 5.5% and 6.3%. The merger of Shenyin Wanguo and Hongyuan Securities did not achieve 1+1>2 effects.

Research identifies three main reasons why Shenwan and Hongyuan's merger fell short of expectations: First, the merger motivation wasn't market-driven demand, primarily aimed at escaping "one participation, one control" policy restrictions, achieving Shenyin Wanguo's listing amid traditional advantage erosion risks, and addressing Hongyuan Securities' internal governance and risk control crises. Second, integration process faced excessive resistance, with prolonged management team adjustment periods and organizational structure integration issues. Third, cultural integration required extended time, as Shenyin Wanguo was a traditional brokerage focused on first-tier cities with strong brokerage business and advantages in eastern and central regions, while Hongyuan Securities had long cultivated Xinjiang region with stronger investment banking and asset management businesses.

Compared to Shenwan and Hongyuan's merger, the Guotai Junan and Haitong merger may more easily generate synergistic effects, mainly because both are Shanghai-based securities firms, potentially significantly shortening cultural integration time. However, both companies are large leading brokerages with their own long-established corporate cultures and management models, making deep integration challenging.

GTHT also faces certain integration obstacles: First, the reorganization background and objectives mentioned in the company's absorption merger plan show no indication of bilateral consultation reaching merger agreements. Second, both pre-merger Guotai Junan and Haitong Securities were leading brokerages with similar asset and performance scales. Although Haitong Securities encountered some issues, whether Haitong's internal management and core employees are willing to accept reorganization results remains questionable. Third, given securities firms' inherent homogenization and "one participation, one control" policy requirements, the two firms' merger inevitably requires downsizing or integrating some business lines, with employee turnover and changes increasing integration difficulty.

Public information shows GTHT had 18,513 securities industry personnel in Q2 2025, compared to the combined 19,018 Q1 personnel of Guotai Junan and Haitong Securities, representing a reduction of over 500 people within three months.

Research suggests securities company merger integration is a protracted battle of "30% acquisition, 70% integration." Successful cases demonstrate that strategic synergy, cultural integration, technological empowerment, and risk control can achieve "1+1>2" synergistic effects, while failures warn that neglecting integration details and cultural conflicts lead to "diseconomies of scale" or superficial harmony without genuine unity.

**Derivative Financial Instruments Generate RMB 3.5 Billion Book Loss, Largest Gap in Equity Instruments**

In the first half of 2025, the Shanghai Composite Index rose 2.76%, Hang Seng Index gained 20%, and S&P 500 increased 5.5%, with relatively good equity market performance. GTHT stated that its proprietary investment business adheres to long-term value investing, strengthens global target research, focuses on improving trading pricing capabilities and risk prevention abilities, achieving good returns.

However, GTHT disclosed neither equity market investment returns nor specific proprietary investment business revenue figures, only publishing institutional and trading business revenue (including research, institutional brokerage, trading investment, and alternative investment businesses).

Using the formula "proprietary business = fair value change net income + investment net income - investment income from associates and joint ventures," GTHT's first half proprietary business revenue was approximately RMB 9.352 billion, ranking second in the industry but with a twofold gap compared to CITIC Securities' RMB 19.052 billion.

In its half-year report, GTHT disclosed some derivative instrument conditions for the first half. As of the end of the first half of 2025, the company's derivative financial instruments (difference between derivative financial assets and derivative financial liabilities) had a book value of -RMB 4.752 billion, with fair value change gains of -RMB 3.535 billion.

Accounting professionals believe that derivative financial assets being less than derivative financial liabilities means the company's held derivative contracts, calculated at fair value, overall brought unrealized net losses. If closed at the reporting period end, this would result in losses, with market changes unfavorable to the company.

Specifically analyzing GTHT's derivative financial instruments, equity derivative instruments showed the largest gap. Equity derivative financial assets totaled RMB 5.318 billion while liabilities reached RMB 8.704 billion, creating a -RMB 3.386 billion difference, representing a major reason for the company's negative fair value change gains.

As mentioned above, equity markets performed reasonably well in the first half of this year, and GTHT's proprietary investment returns should also be decent. The negative value of equity derivative instruments may indicate the company used a considerable portion of products for risk hedging, but whether future closures will generate massive losses remains to be seen.