FIRST SHANGHAI released a research report stating that as a leading central state-owned securities firm, China Galaxy (06881) demonstrates outstanding advantages in risk control, customer base, and policy dividend capture. The company is expected to continue unleashing growth potential amid industry recovery and business structure optimization, achieving both profit and valuation expansion. The target price is set at HK$12.66, with a maintained "Buy" rating. Key highlights from FIRST SHANGHAI are as follows:
**Earnings Exceed Expectations, ROE Surge Reflects Profit Resilience** In the first three quarters of 2025, China Galaxy reported revenue of RMB 22.75 billion, up 44.4% YoY, and net profit attributable to shareholders of RMB 10.97 billion, surging 57.5% YoY. The weighted average ROE reached 8.77%, up 2.97 percentage points YoY, indicating significant profitability improvement. In Q3 alone, net profit attributable to shareholders soared 73.9% YoY and 29.0% QoQ to RMB 4.48 billion, marking a record quarterly performance and far exceeding market expectations. Excluding client funds, the operating leverage stood at 4.23x by the end of Q3, up 4% from the beginning of the year, with sequential quarterly improvements reflecting optimized capital efficiency.
**Brokerage and Margin Lending Drive Growth, Solid Customer Base** Benefiting from a 113% YoY increase in average daily stock and fund trading volume to RMB 1.81 trillion and a 66.2% YoY rise in margin lending balance to RMB 2.39 trillion by Q3-end, the company’s brokerage net income surged 70.7% YoY to RMB 6.31 billion, accounting for 28% of total revenue. Q3 brokerage income alone jumped 125% YoY and 54% QoQ to RMB 2.66 billion, outperforming market trading volume growth and highlighting strong customer engagement and conversion efficiency. Monthly active users of its app grew sequentially, with total clients surpassing 18 million by mid-2025. Net interest income rose 22.1% YoY to RMB 3.21 billion in the first three quarters, with Q3 surging 61.1% YoY to RMB 1.27 billion. Margin lending balances grew 62% YoY and 31% from the beginning of the year, demonstrating accelerating momentum.
**Steady Growth in Proprietary Investments, Asset Allocation Strength Confirmed** Net investment income (including fair value changes) reached RMB 12.103 billion in the first three quarters, up 42.4% YoY despite a high base. Q3 saw a 32.6% YoY and 10.7% QoQ increase, showcasing robust investment and risk management capabilities. Financial assets totaled RMB 417 billion by Q3-end, up 9% from the beginning of the year, with other debt investments rising 16.3% to RMB 256.7 billion. The equity securities and derivatives-to-net capital ratio climbed from 27.27% to 32.69%, positioning the company well for future market upturns.
**Investment Banking Rebounds, Equity and Bond Underwriting Advance** Investment banking net income grew 29.9% YoY to RMB 480 million in the first three quarters, though its contribution to overall performance remained limited due to scale constraints. Equity underwriting volume surged 14.2x YoY to RMB 24.1 billion, with market share up 1.68 percentage points to 2.5%, ranking eighth in the industry. Bond underwriting volume rose 76.1% YoY to RMB 576.1 billion, with market share increasing 1.44 percentage points to 4.7%, ranking sixth.
**Investment Recommendation** The company’s net profit attributable to shareholders is projected at RMB 14.7/16.9/18.3 billion for 2025–2027, representing YoY growth of +46.5%/+14.9%/+8.6%. The current stock price implies a 2026 P/B of less than 1x, offering ample safety margin.
**Key Risks**: 1) Systemic market risks; 2) Policy and regulatory risks; 3) Operational and reform risks.
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