CSC reported FY20 net profit of RMB 9.5bn, up 73% YoY, in-line with prelim results. Operating revenue jumped 62% YoY, on strong prop-trading, brokerage and investment banking. Mgmt. mentioned during results briefing that CSC was ranked 6th by FY20 net profit in the industry, while ranked out of top 10 by net assets. As most large peers either completed or rolled out capital replenish plans, we think it is very possible that CSC will do another round equity financing in recent years. We revise up CSC’s FY21E-22E earnings forecast by 13%, but trim TP to HK$ 13.70 on heightened market volatility. We still like the Company’s leadership in domestic IB and its rapid progress in capital-based businesses. Maintain BUY.
- Results positives: 1) Prop-trading gains skyrocketed 97% YoY, gained from equity investment and bond trading thanks to expanded financial investment (+45% YoY) and the Company’s strong investment capability. We calculated the investment yield jumped 1.1ppt YoY to 6.4% in FY20. 2) Brokerage income +70% YoY, where share gain (+0.4ppt YoY to 3.3% according to the Company) offset declining commission rate (-13% YoY vs. -9% of industry), and agency sales of financial products and futures trading also surged 276% and 72% YoY, respectively. 3) Investment banking fees +59% YoY, mainly due to its strength in IPO underwriting (amount +407% YoY) and leading position in corporate bond underwriting (amount +15% YoY). 4) AM fees +21% YoY, as its active management capability enhanced (69% actively managed AUM ended FY20, up 27ppt YoY) and mutual fund sub. achieved 26% revenue growth YoY.
- Results negatives: 1) Net interest income -15% YoY, although interest income from margin financing +47% YoY on back of 67% margin acct. growth, contracted reverse repo balance (-24% YoY) reduced related interest income by 34% YoY. Moreover, CSC greatly increased short-term financing and repos (+142%/+52% YoY), leading to higher interest expenses. 2) Impairment losses recorded RMB 1.4bn, vs. a write-back of RMB 52mn in FY19. The write-off was mainly for SPLs (RMB 1.0bn) and bond investment (RMB 290mn).
- Trim TP to HK$ 13.70. Maintain BUY. We revise up CSC’s FY21E-22E earnings forecast by 13% mainly to reflect higher investment yield assumption and lower cost-to-income ratio. We trim our TP to HK$ 13.70 to incorporate higher COE (10.9% vs. prev. 9.8%). CSC now trades at 0.88x 1-year forward P/B (vs. 1.05x of CICC and 1.03x of CITICS). Maintain BUY.
