CICC reported 1Q20 net profit of RMB 1.3bn, up 41% YoY, accounting for 26% of CMBIS estimates. Recurring net profit growth was 18% YoY, after excl. mostly gains from disposal of CISC (HK). 1Q20 operating revenue grew 47% YoY to RMB 4.8bn, which was primarily boosted by stellar growth of investment banking fees. CSRC disclosed CICC’s A-share IPO on 15 May. We believe the fast-advancing capital-replenishing process could spur a possible upward re-rating its H-share after A-share IPO, and we are still positive on its earnings outlook driven by investment banking in FY20E. Maintain BUY.
- Results positives: 1) Investment banking fees experienced dramatic growth (+200% YoY) in 1Q20, mainly driven by its leadership in STAR Market IPOs (6 out of 24 STAR Market IPOs listed in 1Q20) and substantial improvement in corp. bonds underwriting amounts (+117% YoY). 2) Brokerage commission +40% YoY (vs. +31% of industry/ +40% of covered brokers on avg.) on both domestic and oversea trading activity recovery. 3) Prop-trading gains +16% YoY, which included gains from disposal of CISC (HK) (consideration of ~RMB 430mn according to public information and our est.), and was also attributable to FV gains from mandatory invt. into STAR Market’s sponsored IPOs. Meanwhile the Company recorded an RMB 298mn forex gain. 4) Asset mgmt./ fund mgmt. and other income +24%/+11% YoY (vs. +16% of industry AM fees), possibly on CICC’s enhanced actively managed AUM.
- Results negatives: 1) Net interest losses +24% YoY though -54% QoQ, as interest expense growth was still outpacing interest income. Total debts grew 10%/49% QoQ/YoY, also outpacing margin acct. and invt. balance growth (2%/10% QoQ/YoY and 3%/18% QoQ/YoY). 2) Impairment losses was RMB 145mn (vs. net reversal of RMB 58mn in 1Q19) and +14% QoQ, likely from credit business which was affected by market turbulence in 1Q20.
- A-share IPO process likely accelerating. CICC’s financial leverage further climbed up to 6.6x ended 1Q20 (+0.5x QoQ). The Company has submitted A-share IPO prospectus to CSRC just two months after it revealed the plan, and the process is being advanced in a fast pace to relieve its capital pressure asap, in our view. CICC now trades at 0.91x 1-yr fwd P/B, 13% below its historical avg. minus 1SD (1.04x). We believe the Company’s strength in investment banking and high utilization of capital will continue to support its earnings growth. Maintain BUY.
