abc18 January 2024Global Research and Evidence LabChina Non-bank Financial Sector - AAPAC Focus: How will generative AI reshape non-bank financials? (Part II)The pace of generative AI adoption in China’s financial sector has exceeded the initial expectations we outlined in our analysis last year, with many industry participants now trialling or adopting multiple use cases. We believe financial IT providers will benefit more than large language model (LLM) developers, given they are better-placed to tailor generative AI to industry-specific use cases as the technology scales in the medium-to-long term. We see Yusys Tech and Hundsun Tech as key beneficiaries. GenAI adoption has exceeded our initial expectationsOur previous report on generative AI (GenAI) (link) analysed its potential applications, cost savings, earnings impact, and valuation implications for financial institutions (FI). In the past half a year, GenAI adoption in the sector has happened faster than we expected (Figure1), with a proliferation of use cases across all business functions, in particular marketing and customer service, wealth management, research, investment banking, risk and compliance, and middle- and back-office operations. IT software firms or large language model developers – who benefits more?In China, LLM developers rely on financial IT software firms for access to customers in financial services, given the complexity and specialised nature of the industry, and its need for strict confidentiality. These financial IT companies are able to provide specific scenario-based products, as well as full-process deployment and training solutions for FIs. Financial information services providers derive a competitive edge from well-defined business scenarios and products, but are subject to higher technological and regulatory requirements. In our median case, we expect GenAI to drive Rmb69bn of incremental revenue in the financial IT sector by 2030, accounting for 24% of revenue. We also expect a sector-wide improvement in margin, as GenAI drives greater productisation and empowers existing businesses.Key beneficiariesBased on our scenario analysis,in the median case, we expect GenAI development in the financial sector up to 2030 to the valuation of Yusys by 56% (initiate at Buy), Hundsun by 33%, brokers by 19% (our top picks are Huatai A/H and Citic), and insurers by 12% (our top picks are Ping An and CPIC).This report has been prepared by UBS Securities Co. Limited. This is a translation of a Chinese research note published by UBS Securities Co Ltd on the same date. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 23. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest ...
