20180830-中国银河国际证券-广发证券-01776.HK-Weak_Q2_results_Downgrade_to_HOLD_5页_1mb

GF Securities Summary

Core Information

• Company: GF Securities (GFS) [1776.HK; 000776.CH]
• Valuation:
  • PBR (H): 0.77x (lower than historical average by 1.85 standard deviations)
  • PBR (A): 0.80x
• Stock Price (Aug 29, 2018): HK$10.20
• Target Price:
  • H: HK$11.70 (+14.7%)
  • A: RMB12.50 (-7.7%)
• Valuation Adjustment:
  • Previously, GFS was believed to deserve a valuation premium due to its strong ROE.
  • Current low valuation suggests no major catalysts in the near term.
• Rating: Downgraded from BUY to HOLD

Investment Highlights

Revenue and Profit

• Q2 2018 Net Profit: RMB1.33bn, down 38.4% YoY
• Q2 2018 Total Revenue: RMB3.6bn, down 28.1% YoY
• Net Profit Decline:
  • Down 38.4% YoY
  • Cut by 21.6% and 17.7% for 2018E and 2019E respectively

Business Performance

• Investment Banking Revenue: Down 65.7% YoY to RMB211m
• Brokerage Revenue: Down 6% YoY due to low trading volume
• Net Investment Income: Down 62.4% YoY to RMB913m
• Asset Management Revenue: Moderate recovery, up 14.3% in Q2 2018

Cost Management

• Staff Costs: Down 24.2% YoY to RMB2.46bn, despite moderate staff growth
• Net Profit Decline Mitigated: Staff cost control helped reduce the decline

Market Outlook

• July 2018 Performance: Net profit down 8.2% YoY
• Short-term Outlook: Unexciting, with little room for financial innovation
• ROE: Expected to drop to 7.2% in 2018E, below the historical >10% level

Key Financials

Income Statement (RMB'000)

Balance Sheet (RMB'000)

Key Ratios

Conclusion

• GF Securities experienced a significant decline in Q2 2018 results, with net profit down 38.4% YoY.
• The Company's revenue and profit declined across most business lines, with notable drops in investment banking and net investment income.
• Despite aggressive staff cost cuts, the net profit decline was still substantial.
• The stock's valuation is very low, with no clear catalysts expected in the short term.
• The downgrade to HOLD reflects the lack of near-term growth signals and the continued challenging market environment.
• The Company's asset management business showed some recovery, but other areas remained weak.