UBS: Mainland brokers' Q3 recurring net profit expected to rise 16% year-on-year; CXMT Corporation (688825.SH) listing serves as key buffer

UBS released a research report stating that it expects the recurring net profit of listed brokers to slow to 16% year-on-year growth in Q3, below the 83% and 39% growth in Q2 and Q1, and down 18% quarter-on-quarter, reflecting weaker trading activity and softer market conditions, while the listing of CXMT Corporation (688825.SH) provides a key earnings buffer. The bank noted that during the quarter, the average daily turnover of A-share stocks and related products and the margin financing and securities lending balance still grew 11% and 7% year-on-year respectively, but fell 18% and 15% quarter-on-quarter. Fair value gains on STAR Market and ChiNext investments had boosted earnings acceleration in Q2, and are expected to turn into a drag for most listed brokers in Q3, except for those benefiting from the ChangXin listing. In Q3, the CSI 300, STAR 50 and ChiNext Index fell 12.5%, 30.7% and 27.8% respectively, compared with gains of 11.9%, 75.7% and 36.4% in Q2. The bank estimates that investment banking net revenue rose 88% year-on-year and 72% quarter-on-quarter in Q3, driven by strong IPO fundraising, especially the ChangXin listing; A-shares recorded 52 IPOs raising RMB146 billion, up 2.6x year-on-year and 2.3x quarter-on-quarter. Investment income is estimated to have grown 29% year-on-year and fallen 14% quarter-on-quarter; brokers held ChangXin through direct investments and IPO cornerstone investments, estimated to have generated over RMB20 billion in unrealized gains in Q3. Brokerage business revenue is estimated to have fallen 11% year-on-year and 15% quarter-on-quarter; net interest income is estimated to have fallen 9% year-on-year and 15% quarter-on-quarter. The bank believes CICC (03908) H-shares and China Securities Co.,Ltd. (06066) H-shares have the strongest short-term earnings momentum, benefiting from exposure to the ChangXin listing; CITIC SEC (06030), Guotai Haitong (601211.SH) A-shares and Huatai (06886) remain the bank's preferred long-term names.