CICC reported 1H20 net profit of RMB 3.0bn, up 62% YoY, accounting for 56% of CMBIS estimates. 2Q20 operating revenue grew robustly at 20% QoQ, mainly driven by strong investment gains and investment banking fees. We believe 1H20 growth was stronger than market expectation, and expect invt. gains and investment banking business will continue to lead to CICC’s outperformance ahead. Maintain BUY.
- Results positives: 1) Prop-trading gains surged 76% QoQ in 2Q20, which was largely attributable to CICC’s OTC derivative business as well as gains from investment into STAR Market sponsored IPOs in a buoyant A-share market. Investment balance expanded 29% HoH in 1H20 (leverage up to 7.4x) with invt. yield high at 5.2%. 2) Investment banking fees +29% QoQ in 2Q20/+27% YoY in 1H20, where robust domestic equity/debt underwriting amount (+13x YoY/+34% YoY) outshone oversea market. 3) Asset mgmt. & fund mgmt. fees +30% YoY in 1H20, of which income from AM and mutual funds surged 62% YoY, due to its increased AUM (+49% YoY vs. industry -28% YoY) and further enhanced active mgmt. capability (% of monthly avg. actively managed AUM at 83% in 2Q20, according to AMAC). PE fund mgmt. fees also increased 21% YoY in 1H20. 4) Brokerage commission -16% QoQ, (vs. industry -22% QoQ), likely thanks to resilient commission rate.
- Results negatives: Net interest losses continued to expand 22% QoQ in 2Q20/+39% YoY in 1H20, as debt and borrowings (+36% YoY) were growing faster than margin acct. and reverse repo. balance (+14% YoY) in 1H20. The good thing was that finance costs declined (cal. 2.6% in 1H20, down 0.3ppt YoY) amid monetary easing while interest earning assets’ yield softened at a slower pace. In addition, the replenished capital base through potential A-share IPO should help improve the profitability of credit business ahead.
- Maintain BUY. We noticed that CICC cancelled its Board Resolution of raising A-share IPO size to ~25% of total enlarged equity base. We think the sentiment swings here would be limited as long as A-share IPO could be completed. CICC now trades at 1.34x 1-year forward P/B, slightly higher than its historical avg. plus 1SD (1.29x). We would expect its strength in investment and in sponsoring ADRs homecoming deals to support growth in coming quarters. We made no change to our earnings forecast. Our TP of HK$ 22.40 implies 1.67x FY20E P/B. Maintain BUY and as one of our sector top picks.
