CSC reported 1Q21 net profit of RMB 1.7bn, down 12% YoY, accounting for 19%/18% of CMBIS/consensus FY21E est. Operating revenue dropped 6% YoY, where strong fee growth (+19% YoY) was more than offset by weak investment gains (-36% YoY). CSC’s excellent investment performance in FY20 set a high base for this year, and current volatile market may pressure its top-line and earnings in short-term. But we are still positive on the Company’s continuous share gain in brokerage, progress in AM and solid leading position in domestic IPO and corporate bond underwriting. Maintain BUY rating and TP at HK$ 13.70.
- Results positives: 1) Brokerage income +28% YoY in 1Q21, when total domestic stock and fund trading T/O was moderately up 12% YoY, suggesting further share gain in brokerage and surged income from agency sales of financial products esp. mutual funds. 2) Asset management income +42% YoY, on relatively low base, while it was also attributable to enhanced active management capability (actively managed AUM +45% YoY in FY20) as well as robust mutual fund issuance. 3) Investment banking income +10% YoY, though CSC recorded 64%/14% YoY decline in domestic equity/debt financing underwriting amount to RMB 23.2bn/RMB 235.5bn, due to absence of mega deals and tightening IPO rules in 1Q21. 4) Impairment losses recorded a write-back of RMB 103mn after heavy write-off of RMB 1.4bn in FY20. We expect brokers to see less pressure from credit cost in FY21E.
- Results negatives: 1) Prop-trading gains -36% YoY, including a solid RMB 2.0bn investment gains and RMB 819mn FV losses, likely due to volatile stock market in 1Q21. Cal. investment yield was down 3ppt both QoQ/YoY, while a recovery in market sentiment could help reverse the FV trend. 2) Net interest income -11% YoY, where interest income continued to climb to quarterly high as margin acct. remained strong at RMB 48.4bn (+4% QoQ/+65% YoY), yet interest expense outpaced as total repo and borrowings balance -2% QoQ/+37% YoY.
- Maintain BUY. We made no change to our earnings forecasts. CSC now trades at 0.9x 1-year forward P/B (vs. 1.05x of CICC and 1.03x of CITICS). We maintain our TP at HK$ 13.70 and BUY rating.
