UBS: Mainland brokers' recurring net profit in the third quarter is expected to increase 16% year-on-year, and the listing of Changxin Technology (688825.SH) became a key buffer

The Zhitong Finance App learned that UBS released a research report saying that the third-quarter recurring net profit growth of listed brokerage firms is expected to slow to 16% year-on-year, lower than the 83% and 39% increase in the second and first quarters, and fall 18% from quarter to quarter, reflecting weak trading and weak market conditions, while the listing of Changxin Technology (688825.SH) provides a key profit buffer.

The bank pointed out that the average daily turnover of A-shares and related products and securities financing balances during the quarter still increased 11% and 7% year-on-year respectively, but fell 18% and 15% from quarter to quarter. Fair value earnings from science and technology innovation board and GEM investments drove profit acceleration in the second quarter, and the third quarter was expected to be a drag on most listed brokerage firms, with the exception of those that benefited from Changxin's listing. The Shanghai and Shenzhen 300, Science and Technology Innovation 50 and GEM indices fell 12.5%, 30.7% and 27.8% respectively in the third quarter, up 11.9%, 75.7% and 36.4% from the second quarter.

The bank estimates that net income of investment banks increased 88% and 72% in the third quarter, respectively, driven by strong initial public offering (IPO) fund-raising (IPO), particularly Changxin's listing; A-shares recorded 52 IPOs and raised RMB 146 billion, up 2.6 times and 2.3 times from quarter to quarter, respectively. Investment revenue is estimated to have increased 29% year over year and decreased 14% from quarter to quarter; brokerage firms hold Changxin through direct investment and IPO follow-up, and are estimated to generate more than RMB 20 billion in unrealized income in the third quarter. Brokerage revenue is estimated to be down 11% and 15% year-on-year, respectively; net interest income is estimated to be down 9% and 15% year-on-year and quarterly, respectively.

The bank believes that CICC (03908) H shares and CITIC Construction Investment (06066) H shares have the strongest short-term profit momentum, benefiting from Changxin's listing exposure; CITIC Securities (06030), Cathay Pacific Haitong (601211.SH) A shares, and Huatai Securities (06886) are still the bank's preferred long-term names.