Enhanced market share in investment banking business togetherwith prudent investment strategy should make HTS betterpositioned as a market leader
We revised down FY16/17E NPAT by 2%/5% due to subdued Asharemarkets and project NPAT growth of -34%/19%/13% YoY inFY16/17/18E
Trading at 1.01x FY17E P/B and 10.62x FY17E P/E which is closeto 1SD below mean and also at 31% discount to its A-share price,HTS’ valuation remains attractive, despite challenges in earningsoutlook. Maintain BUY and revised up TP to HK$18.07
Benefiting from SME-focused business model andprudent investment strategy
HTS' SME-focused strategy for investment banking business has helpedit gain larger market share in both equity and bond underwriting amountin 1Q16. The strengthened presence in primary markets contributes todiversify HTS' traditional business despite the depressed secondarymarkets. We expect fee and commission income from investmentbanking to grow strongly by 83%/28%/18% YoY with higher contributionof 32%/35%/37% to total fee income in FY16/17/18E. HTS should alsobenefit from its prudent investment strategy with relatively lower exposureof investment portfolio which should make it more defensive amid volatilestock market conditions.
While we revised down FY16/17E NPAT due to subdued stock market,we introduced earnings forecasts for FY18E with NPAT growth at -34%/19%/13% YoY in FY16/17/18E. We assume average daily turnover(ADT) to reach RMB645/RMB753/RMB755 bn and balance of marginfinancing and securities lending at RMB924/RMB1,003/RMB1,097 bn inFY16/17/18E as we only look for a mild recovery in A-share stock marketthroughout FY18E.
Catalysts and valuation: rolling over to FY17E
A mild recovery for A-share stock markets with an increase in averagedaily turnover as well as margin financing and securities lending balancein 2H16E and launch of Shenzhen-Hong Kong Stock Connect shouldserve as positive catalysts to boost share prices.
Revised up TP to HK$18.07 from previously HK$17.09 as we roll overvaluation to FY17E. Our revised SOTP-based target price implies 15.0xFY17E P/E 1.43x FY17E P/B with 42% upside from the closing price on10 June 2016. Reiterate BUY rating and HTS continues to be the mostpreferred stock within sector coverage.