CICC reported 1H19 net profit of RMB 1.9bn, up 15% YoY, accounting for 47%/41% of CMBIS/consensus FY19E estimates. The results was in-line with our expectation but may lightly miss consensus. CICC was one of the few brokers that delivered a positive sequential growth in 2Q19, with operating income/ net profit up 16%/7% QoQ. The growth was mainly powered by stellar performance of investment banking income and prop-trading gains. We noticed the Company’s number of oversea equity financing projects declined in 3Q19, but this could be offset by its strong pipeline in STAR Market (ranked first by fund raising size and second by number of IPOs). In addition, its relatively stable investment yield could also protect its earnings in weakening market condition. Maintain BUY.
- Results positives: 1) Investment banking net income jumped 2x QoQ in 2Q19, which we believe was primarily boosted by oversea equity financing underwriting. According to Bloomberg, the Company ranked first place among Chinese players by underwriting amount in Hong Kong IPO and follow-on offerings in 1H19 with significant share gains. 2) Prop-trading gains also increased 27% QoQ, with good performance from both equity (likely from OTC derivatives) and bond. CICC achieved an investment yield of 5.1% in 1H19, up 0.3ppt YoY. 3) AM and fund management net income increased 8% YoY in 1H19, which was largely driven by its strong PE fund management business. Total AUM of AM and PE management recorded a 12% and 6% HoH in 1H19 against a downward industry trend.
- Results negatives: 1) Brokerage net income was flat QoQ and up only 2% YoY in 1H19 (vs. A-share ADT +2% QoQ and 32% YoY). This may be resulted from a lower income from institutional customers (gross income -19% YoY) in 1H19, but was partly offset by strong growth from retail brokerage (gross income +18% YoY). 2) Net interest loss rose 3.3x QoQ, as the Company further leveraged up. Placements from banks increased another 45% in 2Q19. Active leverage therefore rose from 5.9x in 1Q19 to 6.2x in 2Q19. 3) Impairment losses was RMB 47mn in 2Q19, reversing from a RMB 58mn write-back in 1Q19, likely on deteriorated asset quality amid weakening A-share market.
- Valuation. CICC currently trades at 1.23 FY19E P/B, 3% above its historical average (1.19x). We maintain our earnings forecast unchanged, and maintain BUY rating on CICC with TP at HK$ 18.6.
