1H20 results in line with our expectationsCITICS’ 1H20 revenue rose 23% YoY to Rmb26.7bn, and attributablenet profit grew 38.5% YoY to Rmb8.9bn, in line with thepreannouncement. 2Q20 net profit was Rmb4.9bn (+122% YoY and+19% QoQ). 1H20 revenue of all business lines grew in 1H20, withthe main momentum in the investment business. 1H20 ROE rose1.0ppt YoY to 5.1%, and the adjusted business and G&A expense ratiofell 4.5ppt YoY to 40.9%. The leverage ratio rose 0.62x YoY and 0.31xQoQ to 4.48x.
　　Trends to watch
　　Investment income sharply rising and contributing majorincremental earnings. 1H20 investment income rose 59% YoY toRmb11.9bn, and the balance of held-for-trading financial assets rose26% HoH to Rmb44.8bn (annualized investment return +0.1ppt YoYto 5.9%).
　　Brokerage business outperforming the sector. 1H20 brokerageincome rose 32% YoY to Rmb5.0bn (vs. 28% rise in market turnoverand 18% growth in sector brokerage income).
　　Consolidating advantages in investment banking business. 1H20 IBincome rose 23% YoY to Rmb2.22bn.
　　Asset management and mutual fund business improving. 1H20 AMincome rose 23% YoY to Rmb3.29bn.
　　Capital intermediary business. The end-1H20 balance of margintrading and short-selling rose 21% HoH to Rmb85.2bn, and end-1H20balance of on-B/S stock pledges fell 2.3% HoH to Rmb39.6bn.
　　See page 3 for details.
　　Financials and valuation
　　Given higher assumptions for investment income, we raise our 2020and 2021 earnings forecasts 6% and 5% to Rmb18.1bn andRmb21.6bn. CITICS A-share and H-share are trading at 2.4x and 1.2x2020e P/B. Maintain NEUTRAL for A-share and H-share with TPs atRmb35.50 (2.6x 2020e P/B with 12% upside) and HK$22.40 (1.5x2020e P/B with 19% upside).
　　Risks
　　Sharp decline in market turnover; sharp market fluctuations;disappointing capital market reform.