Company description

CITIC Securities (CITCS) is one of the largest investment banks in China providing products and services to corporates, financial institutions, governments and individuals. CITCS was the first China-based investment bank to be listed in Shanghai Stock Exchange in 2003. CITIC Group is the largest single shareholder of the company. CITCS maintains a leading market share in China’s brokerage, underwriting, asset management, margin financing, securities lending and direct investment markets. In 2013, CITCS acquired 100% equity interest of CLSA and CITIC Wantong Securities, as well as regained a controlling stake in China AMC. It operates more than 300 branches in mainland China and four branches in Hong Kong as of 2017.

CITCS commands a leading position and has a strong franchise in underwriting, asset management and institutional businesses. It ranked number one in terms of market share in equity underwriting volume, bond underwriting volume, IPO underwriting volume and equity refinancing underwriting volume in 2017. It also ranked as one of the top three brokers in terms of equity and fund trading volume, and equity only trading volume in 2017.

Investment thesis

CITIC Securities (CITCS) is more diversified than its peers because of its strong franchise in brokerage, underwriting, prime brokerage, equity derivatives, fixed income, currencies and commodities, asset management and investment banking, all of which makes it more stable from a revenue perspective and positions the bank well for industry consolidation.

Investment summary

  • In-line 1H18 results – Net profit rose 13% y/y, outperforming its peers in a tough market environment. While average daily turnover in the Ashare market was down 10% y/y, CITCS’s brokerage commission managed to still edge up to 2.8% y/y with market share further improving to 6%. ROE improved sequentially to 7.6% as of 2Q18.
  • Leading position maintained – Its investment banking, brokerage and investment trends stayed resilient with prop trading income rising to 16% y/y with a well-managed price risk and a recovery in bond market. Investment banking income increased 9% y/y in 2Q18 with a recovery in equity re-financing and bond underwriting, offsetting the weakness in IPO.
  • Better-than-expected average daily turnover and improving commission rates for the industry.
  • Relaxation of capital rules, easing pressure on capital will be a positive.
  • Higher-than-expected profit contribution from subsidiaries.
  • Faster-than-expected fee-based business.