[ET Net News Agency, 27 September 2018] Deutsche Bank said Chinese brokers are trading
at a historical low valuation currently, as share price plunged 28% year-to-date.
Despite the cheap valuations, the research house expects sector performance to be capped
in the near term, until new catalyst emerges, which DB believes could take place in 1H
2019 on the back of earnings recovery.
It lowered its market assumptions given the weak market activities currently (stock ADT
-31% hoh to Rmb300bn in 2H 2018 to date, and margin financing balance -15%), and DB now
forecast 2018 stock ADT of Rmb392bn (-15% yoy), implying 2H 2018 ADT of Rmb345bn, and
margin financing balance of Rmb872bn (-15%).
It also cut its 2018/19 earnings forecast by 29%/28%, and it now forecast an average
earnings decline of 21% in 2018 (implying 27% decline in 2H 2018, versus -1% of
consensus). DB prefers large players with market leading position and established
franchise to weather through the weak market environment.
DB revised its target prices for Chinese brokers, on (1) earnings revisions, (2) higher
COE, given the market uncertainties, (3) lower ROE, given their current ROE level and
rising uncertainties in leveraging up, (4) lower growth rate, and (5) rolling forward to
2019.
Name Rating Target Price
----------------------------------------------
CITICS (06030) Buy HK$18.9 from HK$24.4
Haitong (06837) Buy HK$9.6 from HK$14.8
Galaxy (06881) Buy HK$4.7 from HK$7.9
GFS (01776) Buy HK$12.6 from HK$21.7
Huatai (06886) Buy HK$16.1 from HK$23.4
CMSC (06099) Hold HK$9.6 from HK$12.9
EBS (06178) Hold HK$7.0 from HK$10.7
CSC (06066) Buy HK$6.1 from HK$8.5
CICC (03908) Buy HK$18.6 from HK$20.0

(KL)