1H22 results in line with our forecast
　　China Merchants Securities (CMS) announced 1H22 results: Revenue and attributable net profit fell 26% and 25% YoY to Rmb10.6bn and Rmb4.3bn, with annualized ROAE dropping 3.5ppt YoY to 8.0%, in line with our expectations. Adjusted management fee rate in 1H22 picked up 1.5ppt YoY to 46%, and debt ratio of proprietary assets at end-2Q22 declined 0.2x both YoY an QoQ to 4.4x. In 2Q22, attributable net profit dropped 11% YoY and grew 88% QoQ to Rmb2.8bn.
　　Trends to watch
　　Retail business market share and clients number up YoY. Brokerage business revenue fell 6% YoY to Rmb3.3bn in 1H22 (vs. average sector growth of 0.5% YoY), and edged down 0.3% YoY and 1% QoQ in 2Q22. In 1H22, A-share average daily turnover (ADT) grew 9.5% YoY and turnover-based market share picked up 0.7ppt YoY to 5.14%. Meanwhile, commission rate dropped 0.01ppt YoY to 0.026%, dragging down net income from agency sales by 2% YoY. Agency sales of financial products in 1H22 decreased 27% YoY, with revenue from agency sales falling 36% YoY to Rmb255mn.
　　At end-2Q22, CMS’ number of wealth management clients with assets under management (AUM) of Rm0.3mn or above and high-net-value clients (AUM above Rmb8mn) increased 5.9% and 9.6% YoY to 0.54mn and 2,9600.
　　Net interest income declined 66% YoY to Rmb429mn in 1H22 (vs. sector average of -4%), and dipped 68% YoY and 6% QoQ in 2Q22. Interest income from short selling & margin trading and stock pledge decreased 6% and 41% YoY, driving down interest income by 6% YoY to Rmb5.2bn. Specifically, short selling and margin trading volume dropped 14% YoY to Rmb82.8bn, with market share falling 0.2ppt to 5.2%, and bonds payable increased 17% YoY, driving up interest expense by 8% YoY. Amount of custody and outsourced products in 1H22 declined 6.4% vs. the beginning of 2022 to Rmb3.4trn.
　　IB and AM revenue down; fund subsidiaries delivered growth. Investment banking (IB) revenue fell 15% YoY to Rmb800mn in 1H22 (vs. sector-wide flat YoY) and dropped 33% YoY or 21% QoQ in 2Q22. Equity underwriting amount increased 9% YoY, with market share picking up 0.5ppt to 3.1%, and bond underwriting amount declined 26% YoY, with market share down 0.5ppt YoY to 1.6%. Asset management (AM) revenue fell 17% YoY to Rmb429mn in 1H22 (vs. sector decline of 8% YoY), and dropped 11% YoY and rose 7% QoQ in 2Q22. AUM decreased 14% vs. start-2022 to Rmb417.9bn. In 1H22, Bosera Funds’ AUM of non-money-market funds and net profit rose 28% and 8% YoY to Rmb544.5bn and Rmb873mn, while China Merchants Funds’ AUM of non-money-market funds and net profit grew 38% and 22% YoY to Rmb588.3bn and Rmb954mn.
　　Investment income under pressure. Investment return dropped 35% YoY to Rmb3.9bn in 1H22 (vs. sector decline of 38% YoY), and fell 10% YoY and rose 474% QoQ in 2Q22 (down 42% YoY if excluding joint ventures and associates). Tradable financial assets at end-1H22 increased 6% YoY to Rmb253.3bn, with stocks accounting for 7%, bonds 61%, funds 13%, and others 18%, translating to annualized investment return rate of 2.4% (down 2.8ppt YoY).
　　Financials and valuation
　　Given revisions to our investment return forecasts, we trim our 2022 and 2023 attributable net profit forecasts by 11% and 12% to Rmb9.9bn and Rmb11.7bn. CMS-A is trading at 1.1x 2022e and 1.0x 2023e P/B (excluding perpetual bonds). We maintain OUTPERFORM and cut TP by 5% to Rmb17.3 (mainly reflecting earnings forecast revisions), implying 1.4x 2022e and 1.3x 2023e P/B (excluding perpetual bonds), offering 32% upside.
　　Risks
　　Market fluctuations; policy headwinds; business transformation disappoints.
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【免责声明】本文仅代表第三方观点，不代表本站立场。投资者据此操作，风险请自担。