CICC: Keeping China Galaxy (06881) outperforming the industry rating and raising the target price to HK$13.8

The Zhitong Finance App learned that CICC released a research report stating that considering the increase in market activity, China Galaxy (06881) 25e/26e net profit was raised 23%/14% to 13.5 billion yuan/13.8 billion yuan. Currently, the company's H shares are trading at 25e/26e 0.8x/0.7x P/B. Considering emotional recovery, the target price was raised by 44% to HK$13.8 to maintain the outperforming industry rating (corresponding to 0.9x/0.8x 25e/26e P/B with 20% upside).

CICC's main views are as follows:

The results for the first half of 2025 are in line with the performance forecast and the forecast

The company's revenue for the first half of the year was +38% to 13.7 billion yuan, and net profit to mother was +48% to 6.49 billion yuan, estimated annualized ROAE +2.5ppt to 9.1% year over year, in line with the performance forecast and forecast; 2Q25 profit +26% YoY/+15% month-on-month to 3.47 billion yuan, single-quarter annualized ROAE was +1.4ppt to 9.7% year over year, total assets at the end of the year +6% compared to the beginning of the year, and the leverage ratio of own funds was -0.24x/ +0.07x to 4.14x compared to the end of the year. The company declared an interim dividend of 0.125 yuan per share, with a dividend ratio of 21%.

Investment income increased year-on-year, and financing business remained steady

1H25's total capital business revenue was +38% year-on-year to $9.3 billion, accounting for a flat share of revenue of 68%. 1) Investment income increased 49% year over year to 7.4 billion yuan, and the estimated return on investment in comprehensive financial assets was +1.3ppt to 5.4% year over year. Investments in transactional financial assets/equity instruments at the end of the period were +15%/+4% compared to the end of the year, respectively, in the transactional financial asset structure, bonds/stocks/funds were +19%/flat/+17% compared to the end of the year. The improvement in the capital market in the first half of the year and the disposition of other debt investments supported the company's overall investment income performance; 2) Net interest income was +6% year-on-year to 1.9 billion yuan, and declining financing costs boosted net interest income.

Strong market boom drives high growth in brokerage business

The total revenue of 1H25 corporate fees was +41% year-on-year to 4.2 billion yuan. 1) Net revenue from brokerage business +45% to 3.65 billion yuan, accounting for 27% of revenue, of which net revenue from brokerage trading was +50% to 3.1 billion yuan. By the end of the period, the total number of company customers was +13% to over 18 million; 2) Net income from investment banking business was +19% to 320 million yuan, with a share of +83% year-on-year, and the stock underwriting scale reached 20.6 billion yuan, ranking 8th in the market; 3) Asset management net revenue was +18% to 270 million yuan, and the asset management product matrix was continuously optimized. The international business developed steadily, and the leading position in Southeast Asia was consolidated. In the first half of '25, Galaxy International's business revenue was +5% year over year, and profit was +4% year over year. By region, in the first half of the year, Galaxy International's brokerage business ranking in Hong Kong, China increased by 2 places. The investment banking business completed 11 Hong Kong stock IPOs and underwrote 103 foreign bonds, and the ranking was also rising steadily; in the Southeast Asia region, Galaxy's overseas brokerage business steadily ranked at the top of the Southeast Asian core market. Investment banks had a cumulative underwriting scale of S$1.8 billion, and cross-border investment and financing service capabilities continued to improve.