Flourishing international business
- 4Q24 profit up 48% y/y driven by net fees and capital income, in line; final DPS of Rmb0.28 brings FY24 payout to 37%, flattish y/y
- Lowered FY25F/26F profit by 8% each to reflect lower revenue elasticity and higher staff costs, partially offset by higher A-share ADT and margin assumptions
- 2H24 international profit up 176% y/y driven by FICC and equity derivatives, enabled by capital injection in Jun’24
- Maintain BUY on CITICS’ unrivalled domestic leadership and strong international momentum; TP trimmed to HKD28 pegged to a lower 1.4x FY25F P/B
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Total asset rose by 18% y/y, while declining mildly by 1% q/q, as financial assets held for trading was down 9% q/q, possibly due to tapering trading sentiment towards quarter-end from peak in late-Sep, partially offset by 22% growth in margin financing balance. FY24 net profit rose by 8.9% y/y, while final DPS of Rmb2.8 brings FY24 DPS to Rmb5.2 (+9.5% y/y), with payout ratio staying flat at 37%, translating to 2.6% current dividend yield.
Lower-than-expected elasticity from brokerage income, but growth gap between retail/insti may narrow. Given that 4Q24 A-share stock-only ADT soared by 170% q/q, the 56% q/q growth in net brokerage fee was considered slower-than-expected, which could be attributable to higher-than-peers exposure to institutions and overseas businesses, as onshore retail was the key volume driver. For comparison, retail-focused online broker EastMoney’s (300059 CH, NR) commission fees surged by 121% q/q in 4Q24. That said, we expect the gap in brokerage fee growth between retail / institutions to narrow ahead, as WeChat search trend suggests retail investing sentiment has normalised YTD while ADT stayed at a relatively high level. We also revised up FY25F/26F A-share ADT by 12% each to Rmb1.4/1.5tn, and margin financing balance also by 12% each to Rmb2.2/2.3tn, to reflect the stronger YTD momentum and rising tech investment interest.
Investment banking leadership well maintained in FY24. CITICS remained on top in domestic IPO/refinancing/bond underwriting businesses with 19.4%/22.5%/7.1% market share respectively, showcasing its dominance at the onshore front. It is also catching up at the offshore side, with HK equity / offshore bond underwriting value up 206%/109% y/y, with its ranking climbing to no. 2/1 respectively (from 9/2). We expect IB fees to bottom out during FY25F, to grow 26% y/y as market sentiment improves and onshore IPO review process gradually normalises.
Asset management – AUM offsets fee reduction impact during FY24. China Asset Management’s public fund AUM grew 36% y/y to Rmb18tn, mainly driven by the rising popularity of index funds / ETFs and money-market funds. These enabled FY24 AM fees to grow 6% y/y despite the management fee reduction kicking in fully. Looking ahead, we expect another 8% y/y growth in fees in FY25F, as the growth in equity AUM should more than offset the fee pressure.
International business the key bright spot – FY24 revenue / profit grew 41% / 116% y/y. We think key drivers were from investment income – equity derivatives transaction volume (+116%) and FICC market-making (+88%). This was enabled by the timely equity injection of c.USD1bn in Jun’24, lifting its equity to USD3.1bn in FY24 (FY23: USD1.7bn), thereby capturing the surge of cross-border investment demand, solidifying CITICS’ leadership. Offshore wealth management product sales also grew by 151% y/y. Given that (1) international business accounts for 15%/17% of Group’s FY24 revenue/profit, (2) cross-border investing demand remained strong, (3) CITICS’ growing international presence, we expect international business will be key to its long-term outperformance vs peers.
Maintain BUY, TP lowered to HKD28 on 1.4x FY25F P/B. CITICS-H is currently valued at 1x FY25F P/B, significantly higher than peers’ average of 0.6x-0.7x. We think the premium is justified by its domestic dominance and promising outlook in the international arm. The ROE outperformance and profit share of the industry over past few years provided good evidence. We think CITICS remains as best positioned among China brokers in A-share institutionalisation given its leadership and scale advantage. While some competitors have attempted to catch up through mergers, integration takes time and we think CITICS could further widen the lead.
Earnings call Q&A summary
Q: What were the key drivers of CITIC Securities International’s stellar 2024 performance and outlook for Hong Kong operations in 2025?
A: The USD 916 million capital injection in June 2024 eased liquidity pressures, and supported growth particularly in fixed income, securities financing, equity derivatives. Key highlights include full business coverage in Hong Kong, new products in Singapore and India, and top rankings in IPOs and offshore bonds in HK. Strong domestic-overseas synergy enhanced resource allocation.
Looking forward, CITIC aims to deepen cross-border capabilities, offering one-stop solutions, with optimism for competitiveness and performance driven by supportive policies, market recovery, and rising interest in Chinese and Asia-Pacific assets. For 2025, Hong Kong’s trading and financing rebound offers growth potential, with CITIC poised to leverage this momentum.
Q: How does CITIC view industry consolidation trend and what strategies will reinforce its leadership?
A: CITICS sees the CSRC’s March 2024 push for mergers to form 2-3 globally competitive firms by 2035 as a chance to integrate resources, noting its own M&A track record. Facing peer mergers, CITIC will innovate products (equities, commodities, FX), expand client services globally, and enhance management efficiency to maintain domestic leadership and grow internationally.
Q: What drove the high growth in CITICS’ FY24 investment income and what’s the FY25 asset allocation outlook, and what are CITIC Securities International’s plans beyond Hong Kong?
A: Fixed income – optimised for allocation structure and investment strategy; commodities – innovation in precious metals option market making; equity derivatives – market-making scope became more focused, boosted supply of cross-border products. For 2025, with supportive policies and active markets, CITICS will prioritise client-driven demand in fixed income and equity derivatives.
Q: What positive impacts has the Swap Facility tool had on CITICS, and what’s the outlook for mid-to-long-term capital policies?
A: The Swap Facility has stabilised markets and boosted confidence, with CITICS among the first to implement it, enhancing long-term investment stability. Recent policies, including Rmb290bn in inflows from insurers/pension funds, have uplifted market activity, and CITICS will leverage these trends in 2025 for resource allocation.
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