3Q17 earnings -12.9% yoy mainly on high base in trading, as we flaggedHuatai reported 3Q17 results today. 3Q17 net profits came in at Rmb1,714mn,-12.9% yoy. 9M17 earnings of Rmb4,708mn accounted for 73% of 2017E DBe and69% of BBG consensus. The drag was mainly from net investment gains （-23.9%yoy on high base） and net interest income （-22.0%）。 However, we highlighted themoderated decline in net brokerage commission （-8.0%, vs. -29.8% in 1H17） withcommission rate largely stable at ~2.3bps （-0.1bps yoy）。 Net asset managementfee continued to record strong growth （+179.0%） and net investment banking feereported 16.7% yoy growth to Rmb605mn, a strong rebound from Rmb391mnin 1Q17 and Rmb282mn in 2Q17. While the drag from weak inv is within ourexpectation, we think the sweet spots are growth in investment banking andresilient asset management fees. Reiterate Buy and as one of our Top Picks.
Key highlights
Brokerage: Net brokerage commission was down 8.0% yoy toRmb1,212mn, accounting for 26% of operating revenue. This is draggedby 3% decline in stock+fund turnover and 0.1bps declined in commissionrate. Market share of stock and funds turnover decline 0.5ppt yoy to 7.8%,but remained No.1 in the industry.
Investment banking （IB）： Net IB fees was up 16.7% yoy to Rmb605mn,accounting for 13% of op revenue. The decent growth was mainlydriven by strong debt underwriting with 3Q17 underwriting amount ofRmb31,052mn （+30.8%）。 IPO underwriting amount was down 15.6% yoyto Rmb3,049mn, but recovered from weak 1Q17 and 2Q17 （Rmb819mnand Rmb879mn）
Asset management （AM）： Net AM fees was up 179.0% yoy toRmb577mn, and was largely stable vs. 1Q17 （Rmb570mn） and 2Q17（Rmb569mn）。 It accounted for 12% of Op revenue.
Net interest income: Net interest income was down 22.0% toRmb715mn, accounting for 15% of Op revenue. We believe the dragmainly came from higher interest expense, as we see substantial increasein ST margin loans （Rmb20,400mn vs. Rmb6,923mn in 1H17）
Trading: Net investment gains was down 23.9% yoy to Rmb1,464mn,accounting for 31% of Op revenue. As we flagged previously, the highbase in 3Q16 inv gains would create some volatility, but we see 3Q17 inv gains were the highest compared to 1Q17 and 2Q17. Also, we believethe pressure should ease heading into 4Q17E thanks to a relatively lowbase （4Q16 net inv gains of Rmb746mn, vs. Rmb1,285mn achieved onaverage in 1Q-3Q17）。