China Galaxy Securities announced 1Q19 results, with revenue up 41.4% YoY to Rmb.3.7bn and netprofit up 51.1% YoY to Rmb1.5bn. Weighted average return on equity increased 0.73ppts YoY to2.29%. Brokerage, interest income, asset management, investment banking, and net investmentgains accounted for 51%, 33%, 7%, 5%, and 5% of the firm’s operating income, respectively. Thecompany recorded Rmb53.6m in impairment reversal for its margin financing business. We maintainour EPS forecasts of Rmb0.37 in 19E （+32.1% YoY）， Rmb0.46 in 20E （+24.3% YoY）， and Rmb0.54 in 21E（+17.4% YoY）。 Our target price is unchanged at HK$6.76, representing 0.85x 19E PB. With 25% upside,we maintain our BUY recommendation.
　　Stock market recovery. In March, the company reported net profit of Rmb626m （+68% MoM; +70%YoY） and revenue of Rmb1.36bn （+53% MoM; +45% YoY）。 Hong Kong-listed Chinese brokers have allannounced their March results, with aggregate revenue of Rmb16.9bn （+43% MoM; +54% YoY） andnet profit of Rmb9.3bn （+61% MoM; +54% YoY）。 As a result, aggregate revenue reached Rmb38.7bnin 1Q19 （+57% YoY）， while net profit totalled Rmb18.7bn （+65% YoY）。 We attribute brokers’ strongtop- and bottom-line performance mainly to the continuous growth in A-share market turnover amida buoyant trading environment.
　　Growth momentum. As of end-March, the average daily turnover of China’s A-share market reachedRmb884.7bn （+50% MoM; +89% YoY）， while the balance of margin financing and securities lendingarrived at Rmb922.3bn （+15% MoM; -8% YoY）， accounting for 2.0% of the A-share market’s totalcapitalisation. The CSI 300 Index （SHSZ300:IND） rose 5.5% in March, while the China Bond Indexedged up 0.4%. We expect rising trading volumes to drive up securities firms’ brokerage commissionsand proprietary trading income.
　　Retail leader. China Galaxy’s net fee and commission income rose 0.1% YoY to Rmb1.4bn in 1Q19,due to increasing brokerage income. Net interest income fell 26.3% YoY to Rmb741.7m, due todecreasing margin financing and securities lending business interest income and rising interestexpenses. Investment gains surged 123.0% YoY to Rmb107.3m, thanks to higher gains from equityinvestments. We expect the company to achieve continued growth in commission income, asmanagement increases focus on improving clients’ trading structure by adopting professional tradingstrategies and a prime brokerage model.
　　Maintain BUY. We maintain our EPS forecasts of Rmb0.37 in 19E （+32.1% YoY）， Rmb0.46 in 20E（+24.3% YoY）， and Rmb0.54 in 21E （+17.4% YoY）。 We expect incremental fund inflows to contribute tofurther increasing trading volumes, which will support the firm’s earnings growth through brokeragecommissions and investment income. Moreover, we forecast further write-backs from its marginfinancing business. Our target price is unchanged at HK$6.76, representing 0.85x 19E PB. With 25%upside, we maintain our BUY recommendation.