HTSC reported 1H20 net profit of RMB 6.4bn, up 58% YoY, accounting for 59% of consensus FY20E estimates. 2Q20 operating income increased 25% QoQ, mainly driven by a jump in investment banking fees (+1.3x QoQ) and investment gains (+37% QoQ). We like the Company’s leading position in WM transformation and believe its strength in AM and investment banking could support a high earnings visibility going forward. Maintain BUY.
- Results positives: 1) Investment banking fees +130% QoQ in 2Q20, as four IPOs were completed in 2Q20 (vs. nil in 1Q20) and the Company achieved continuous progress in debt financing market (underwriting amount +30% QoQ). HTSC now has the 3rd/5th largest pipeline on STAR Market/ChiNext, and could well support its IB income ahead. 2) Gains from associates/JVs (+1x QoQ) boosted overall investment gains, mostly from its M&A fund, while prop-trading also improved 16% QoQ, on uptick in investment yield (+0.5ppt QoQ to 3.9% by our est.) while financial investment balance slightly decreased 4% QoQ. 3) Brokerage commissions -16% QoQ, beating industry trend (-22% QoQ), as the Company further gained market share (est. at 7.7% in 1H20, up 0.2ppt YoY) through its industry-leading capability of leveraging mobile APP in WM transformation, while at the same time maintaining a similar commission rate decline to industry average (~10%). 4) AM fees flat QoQ in 2Q20/+16% YoY in 1H20, despite AUM contraction (-3% HoH), as we estimate higher fee rate from enhanced active management capability.
- Results negatives: Net interest income though +25% QoQ in 2Q20 but -19% YoY in 1H20, which we think was due to possible lower asset yield as SPL balance shrank (flat QoQ/-64% YoY) and margin financing faced intensifying competition, and that was partly offset by lower financing cost.
- Maintain BUY. HTSC now trades at 0.83x 1-year forward P/B, 9% lower than its historical average of 0.92x. We maintain our earnings forecast unchanged and maintain BUY rating. Our TP of HK$ 18.80 implies 1.18x FY20E P/B.
