CITICS reported 1Q20 net profit of RMB 4.0bn, down 4% YoY, accounting for 29%of our FY20E estimates. 1Q20 operating income increased 16% YoY to RMB11.6bn, fueled by higher prop-trading gains and brokerage commissions, while aRMB 1.6bn provision charge was the main drag to bottom-line. We think the setof results is still solid given its robust top-line growth, and the Company hasalways been maintaining a prudent provision policy. We still like CITICS for itsall-round leadership, esp. in investment banking and institutionalization, and wesee it as a key beneficiary in on-going capital market reform. Maintain BUY.
Results positives: 1） Brokerage commission +37% YoY in 1Q20 （vs.
　　industry +33% YoY）， which could partly attributable to consolidation of CITICSSouth China （former GZS） that brought about retail trading activity to theCompany and growth in oversea trading. 2） Prop-trading gains +16% YoYfrom higher fair value gains of financial investments. CITICS increased itsinvestment balance 48% YoY/17% QoQ, and achieved a decent investmentyield calculated at 5.6%. 3） AM fees +25% YoY （vs. industry +16% YoY），possibly from both its enhanced active mgmt. capability of asset mgmt. as wellas strong growth of fund mgmt. fees from China AMC （1Q20 monthly avg.
　　balance +46% YoY/+4% QoQ and net profit +25% YoY）。
Results negatives: 1） Investment banking fees -10% YoY, which surprisedus as CITICS’s IPO/follow-on offering/debt financing underwriting amountactually grew 78%/15%/51% YoY in 1Q20. The lower fees may suggest somefee rate pressure or mismatch in revenue recognition, while we do not see anysubstantial unfavorable change to its investment banking competitiveness. 2）Net interest income -40% YoY, where interest expense growth continued tooutpace interest income, as total debt balance expanded 33% YoY/4% QoQ.
　　1Q20 adj. leverage went up 0.8x YoY/0.1x QoQ to 4.2x, despite its equityissuance to Yue Xiu Holding. 3） Impairment losses stayed high at RMB1.6bn, mostly due to higher charges from SPLs and margin financing onparent company level, and it also recorded RMB 0.3bn impairment losses forsubsidiary’s commodity trading business.
Maintain BUY. CITICS’s current valuation is undemanding at 0.94x 1-yr fwdP/B, close to its historical avg. minus 1SD （0.95x）。 We maintain TP unchangedat HK$ 18.90, implying 1.19x FY20E P/B, equivalent to its historical average.
　　Maintain BUY and as one of our sector top picks.