CITICS reported 9M20 net profit of RMB 12.7bn, up 20% YoY, accounting for 84%of our FY20E estimates. 3Q20 operating income was overall strong (fee +44%QoQ and NII +105% QoQ) except for a RMB 3bn invt. FV losses dragging downprop-trading gains (-33% QoQ). Impairment losses surged to RMB 3.1bn, eroding38% of PPoP, and resulted in 23% QoQ decline of net profit from post-2015 highlast quarter. We see factors dragging earnings are basically one-off and growthtrend is still on track. We maintain constructive on CITICS growth prospectus, forits balanced revenue mix and leadership in investment banking andinstitutionalization enabling it to ride on policy benefits. Maintain BUY.
　　Results positives: 1) Investment banking fees +71% QoQ in 3Q20, mainlydue to strong growth of domestic equity underwriting amount (IPO +7.6xQoQ/follow-on offerings +41% QoQ) as ChiNext Reform implemented andissuance pace sped up. Bond underwriting amount decreased 13% QoQ.
　　CITICS now owns the largest IPO pipeline by no. of sponsorship on bothChiNext and STAR Market, and we expect robust IB to continue. 2)Brokerage commissions +51% QoQ, thanks to A-share velocity surge in Jul,while the growth was lower than market turnover growth (+78% QoQ), likelydue to commission contraction, lower activity from institutional clients andslower oversea trading turnover growth. 3) AM fees +26% QoQ, and hasincreased consistently for seven straight quarters. We believe this is largelyattributable to the heated mutual fund market. CITICS’s subsidiary China AMCregistered RMB 410mn net profit in 3Q20, up 2% QoQ. 4) Net interestincome +105% QoQ, as margin balance expanded 10% QoQ and possibleexpansion in securities lending business (market daily avg. balance +154%QoQ) that helped widen interest spread.
　　Results negatives: 1) Prop-trading gains -33% QoQ on big FV losses,possibly caused by sluggish bond market (ChinaBond Aggregate Index -2%in 3Q20) and volatile stock market towards quarter-end that affect theCompany’s hedging position for stock options, while investment booked animpressive RMB 7.1bn realized gains. 2) A RMB 3.1bn impairment losseswas recorded, which may be from SPL and debt investments.
　　Maintain BUY. CITICS now trades at 1.1x 1-year forward P/B, below itshistorical average of 1.2x. We maintain our earnings forecast and TPunchanged. Our TP of HK$ 24.60 reflects 1.4x FY21E P/B. Maintain BUY andas one of our sector top picks.