CICC reported FY20 net profit of RMB 7.2bn, up 70% YoY, arriving at the midpoint of profit alert range. Operating revenue increased 53% YoY, fueled by stellar growth of both fee incomes and capital-based businesses, though impairment losses surged. We think CICC’s outstanding franchise in IB and AM will enhance its competitiveness in the evolving capital market. We lift FY21E-22E earnings by 6%-11% and fine-tune TP to HK$ 23.00. Reiterate BUY.
- Results positives: 1) Prop-trading gains surged 89% YoY in FY20, mainly on gains from mandatory investment into STAR Market sponsored IPOs, expanding OTC derivatives and FICC related business. Financial investment balance robustly grew 44% YoY, and calculated investment yield was up 1.3ppt YoY to 5.9%. 2) Brokerage income +55% YoY, likely attributable to share gain in domestic brokerage and a 126% YoY growth of agency sales of financial products. 3) Asset mgmt. & fund mgmt. income +51% YoY, of which AM fees far outpaced industry growth (+51% vs. +9%), as CICC recorded a 61% YoY growth of AUM, and % of monthly avg. actively managed AUM exceeded 91% in 4Q20, according to AMAC. Meanwhile, mutual fund/PE AUM expanded 98%/28% YoY, contributing to a 28% YoY growth of fund mgmt. fees. In 4Q20, CICC Capital remained the largest PE sub of brokers with a monthly avg. AUM of RMB 132bn, more than doubling that of the runner-up. 4) Investment banking income +40% YoY despite high base, highlighted by 55%/15% domestic/oversea IPO underwriting. 5) Net interest loss -2% YoY, thanks to strong interest income from margin financing (+39% YoY and margin acct. balance +46% YoY) and lower funding cost (est. -0.4ppt YoY). The Company’s leverage went down from 7.4x ended 3Q20 to 6.3x ended FY20 after A-share IPO completed in Nov 2020.
- Results negatives: 1) Forex loss was recorded at RMB 2.2bn, reducing top-line by 8%, caused by derivative losses on volatility in forex market. 2) Impairment losses was RMB 973mn, up 510% YoY, and mostly was booked in 2H20 (RMB 806mn). The charge was mainly for receivables, SPLs and margin financing.
- Fine-tune TP to HK$ 23.00. Reiterate BUY. We revised up FY21E-22E earnings forecast for CICC by 6%-11%, mainly to reflect higher investment yield assumption and better growth in AM. CICC now trades at 1.04x 1-year forward P/B (vs. historical avg. of 1.12x). We slightly lower our TP to HK$ 23.00 to reflect higher COE assumption (10.6% vs. prev. 9.5%). Maintain BUY and as one of our sector top picks.
