FY18 net profit -46% YoY; missed. HTSC reported FY18 adj. op. revenue/netprofit of RMB 15.6bn/RMB 5.0bn, down 28% YoY/46% YoY. Bottom line was15%/19% lower than CMIBS/consensus estimates. Topline was in-line with ourexpectation, with strong resilience shown in investment banking and assetmanagement business and main drags from prop-trading （4Q18 -42% QoQ andFY18 -54% YoY on high-base effect） and net interest income （-29% YoY due to23%/41% decline of margin assets/stock-pledged repos balance）。 Soaredprovision （+2.4x YoY） further eroded its net profit.
Investment banking maintained outperformance. HTSC delivered betterthan-market investment banking income performance （-4% YoY vs. -27% YoY），thanks to its strong franchise in equity financing. The Company’s IPOunderwriting amount increased 1.6x against a 30% YoY decline of the market.
FY19 YTD IPO approval remained at a relatively low pace while the marketawaits new business opportunities from the new Tech and Innovation Board. Webelieve the current situation still favors leaders. HTSC also maintained its leadingposition in M&A, ranked 1st by transaction volume, and will likely continue toperform well as policies push forward the M&A reforms.
Impressive asset management fee growth. HTSC saw QoQ growth in assetmanagement net income across FY18, and recorded a 14% YoY growth for fullyear.This could be attributable to improving structure with higher proportion ofactively managed AUM.
Mobile platform to relieve pressure on brokerage business. HTSC’sbrokerage net income declined 20% YoY, better than industry trend （-24% YoY）。
We see this result as a mix of stabilized commission rate （already ~30% belowindustry avg.） and a loss in market share, though its 1st place in the industry wasmaintained. Yet as A-share market activity improved substantially in FY19 YTD,we believe the pressure on brokerage will be relieved. The Company leads theindustry in wealth management transformation leveraging Fintech. Its mobiletrading APP “ZhangLe Fortune Path” had an MAU of 663.7mn in FY18, up 14%YoY, and 87.3% （+2ppt） of its trading customers traded through the APP. Wewould expect this to better improve the operating efficiency of HTSC’s brokeragebusiness.
Maintain BUY. HTSC’s share price likely reacts negatively to the earnings miss,while we see its fundamental is still solid going forward. The Company nowtrades at 1.02x FY19E P/B, equivalent to its historical avg. since listing. Ourtarget price of HK$18.60 implies 1.20x FY19E P/B. Maintain BUY.