CICC reported 9M20 net profit of RMB 5.1bn, up 63% YoY, accounting for 83% of consensus estimates. 3Q20 operating revenue registered a 6% QoQ growth on high base, with strength across all business lines. The Company will complete its A-share IPO and be listed on SSE on 2 Nov, raising RMB 13.2bn. We believe the replenished capital base can well support CICC’s assets expansion ahead, and the Company remains its edge in investment banking to enjoy capital market reforms. Maintain BUY.
- Results positives: 1) Brokerage commissions +59% QoQ in 3Q20, on back of surged domestic stock turnover (+78% QoQ), while the lower growth is likely due to lower activity of institutional clients. 2) Investment banking fees +22% QoQ, continuing strong performance on high-base. This was mainly attributable to robust domestic IPO financing underwriting amount (+6.2x QoQ, ranked second) and solid progress in corporate bond underwriting (+30% QoQ, ranked third). Given its rich IPO pipeline esp. in several mega deals and in oversea market, we expect investment banking business will continue to support its earnings in 4Q20E. 3) Prop-trading gains +17% QoQ amid volatility of both bond and stock market, as FV losses mostly reversed and realized gains also advanced. Yet the Company booked a RMB 1.1bn losses from forex, which was likely caused by forex derivatives, dragging down its op. revenue growth to 6% QoQ.
- Results negatives: Net interest losses +8% QoQ, as the Company continued to leverage up with debt and borrowings expanded 10% QoQ, offsetting growth in margin financing (+21% QoQ) and reverse repos (+23% QoQ). CICC’s leverage stayed at 7.4x by the end of 3Q20, thanks to the issuance of RMB 5bn perpetual bonds; and its A-share IPO RMB 13.2bn in Nov will further relieve its capital pressure.
- Maintain BUY. CICC now trades at 1.19x 1-year forward P/B, slightly higher than its historical average (1.16x). Our unchanged TP of HK$ 22.40 implies 1.5x FY21E P/B. Maintain BUY and as one of our sector top picks.
