Net profits -6.3% yoy, implying -20.0% yoy in 2Q
Galaxy announced 1H17 results today. Net profits came in at Rmb2,112mn(-6.3% yoy), implying 2Q17 decline of 20.0%. It accounted for 45% of 2017EDBe and 39% of Bloomberg consensus. The decline mainly came from weakerbrokerage (-29.7% yoy) and substantial deterioration in investment banking (IB)business (-70.2% yoy on both weak equity and debt underwriting). Tradinggains improved slightly by 1.8% yoy. The sweet spots were asset management(AM) business (+46.8% thanks to a small base) and net interest income(+40.3% on lower expenses). Cost-to-income ratio improved slightly (-0.3ppt)to 53.9%, and book value grew 8.0% hoh due to its A-share listing. Overall, wesee this as an unexciting set of results. Maintain Hold.
Key business segments
Brokerage: Net brokerage commission fee was down 29.7% yoy toRmb2,244mn, accounting for 39.5% of op revenue (-10.2ppt yoy). Weestimate 1H17 commission rate was down 0.5bps yoy to 3.94bps, andmarket share of stock+funds turnover dropped 0.3ppt yoy to 4.6%.
IB: Net IB fees saw substantial decline of 70.2% yoy to Rmb143mn,accounting for 2.5% of op revenue (-5.0ppt). Galaxy recorded significantdecline in both equity and debt underwriting in 1H17, based on WIND.Equity underwriting income was down 78.5% (IPO -47.0%), while debtunderwriting amount was down 65.6%.
AM: Net AM fees grew 46.8% yoy to Rmb313mn, accounting for 5.5% ofop revenue (+2.2ppt). The company made a Rmb500mn capital injection toits wholly-owned AM subsidiaries, Galaxy Jinhui in 1H17 to remove itscapital overhang, its AUM grew 3.3% hoh.
Net interest income: Net interest income increased by 40.3% yoy toRmb1,532mn, accounting for 27.0% of op revenue (+10.0ppt) the increasewas mainly driven by a lower interest expense (-29.1%) on lower cost fromrepo and bond payable, which more than offset the decline in interestincome (-9.9%).