HSBC Global Research lowered its target price for Galaxy Securities (CGS)(06881) to HK$4.4 from HK$5 and maintained its "hold" rating.
The research house said better investment income and lower impairment saw net profit grow 98% in 1H. The company is reliant on brokerage business which generates 80% of fee income. CGS also has the highest SPL (stock-pledged lending) exposure among HSBC's covered brokers as of 1H (10% of total assets), with only 0.4% provisions charged on the balance sheet. This embeds higher credit risks amid unfavorable market conditions.
Meanwhile, it has a funding cost of 5.1%, noticeably higher than 3.5%-4% for major brokers. HSBC remains cautious about CGS' profitability and stability.
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