Huatai Securities - Near-term drag in investment income
- 1H24 earnings declined 21% y/y, slightly below due to weaker investment income from equity trading and private equity investments; interim DPS at RMB0.15 at 27% payout ratio
- International and public fund businesses were key bright spots
- Revised down FY24F/25F earnings by 7%/18% to reflect the lower investment income, softer domestic business outlook and disposal of Assetmark
- Maintain BUY, TP lowered to HKD11.5 after rollover at 0.55x FY25F (prev: 0.6x)
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International and public fund businesses were key bright spots, while IB fees (-42%), brokerage fees (-16%), and margin interest income (-13%) were largely in line with the market. PBT from its international business grew 26% to RMB1bn, accounting for 18% of the Group’s PBT. The estimated attributable net profit from the two public fund associates also grew 12% to RMB583mn, as both saw strong AUM growth – China Southern AM (+15% YTD) and Huatai-Pinebridge (+42% YTD) – largely offsetting the negative impact from fee reduction. The company also exercised stringent cost control by reducing business and admin expenses by 17%, of which staff cost was reduced by 22%, during the market downturn.
We have revised down FY24F/25F earnings by 7%/18% to reflect (1) the weaker investment income due to the contraction in equity derivatives trading activity and devaluation of private equity investments, (2) weaker fee income projections due to slower-than-expected recovery in A-share IPOs and trading volume, and (3) the disposal of AssetMark (6% of 1H24 profit) as the deal was completed on 5 Sep. We forecast FY24F earnings would decline 17%, and then rose 1% in FY25F.
As per our earlier comment – To sell AssetMark’s stake for USD1,793mn, the sales will bring USD796mn of pre-tax gains and this is not in model. Given the ease of capital demand amidst slower market activities, we see possibility for HTSC to utilise the huge offshore proceeds for acquisitions to support its international expansion.
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Related Stories
- Huatai Securities - Dragged by investment income03 Apr 2025
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