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CMSC's earnings for the first half of the year are nearly equivalent to its full-year net profit from last year. However, the strong earnings forecast did not trigger a significant stock price rally. What concerns are weighing on investors' minds?
The wealth creation wave on the STAR Market continues unabated. With Changxin Technology officially launching its share subscription on July 16th, expectations for the IPO of this leading domestic memory chip manufacturer to generate substantial wealth are intensifying. Among the lead underwriters, China Merchants Securities Co.,Ltd. (SH: 600999), holding the largest stake, presents the most significant potential for earnings upside.
Even before Changxin Technology's listing, CMSC's performance has already reaped substantial benefits from the tech stock surge. According to its earnings forecast, the company anticipates attributable net profit for the first half of this year to reach between 10 billion and 11 billion yuan, nearly matching last year's full-year profit and representing a substantial year-on-year increase of 93% to 112%.
Following Dapuwei's listing on the STAR Market in April, conservative estimates suggest CMSC has accrued approximately 2.9 billion yuan in paper gains, potentially contributing close to 30% to its net profit. With Changxin Technology's imminent listing, it is projected to bring over 10 billion yuan in unrealized gains to CMSC, solidifying its position within the industry's top tier.
Despite the release of this high-growth forecast, CMSC's stock price has not surged; instead, it has experienced more declines than gains. What exactly are investors worried about?
How Long Can High Profit Growth Last?
The second quarter witnessed a sizzling rally in the STAR Market. The STAR 50 Index soared over 75% for the quarter, fueled by soaring tech stocks and a massive influx of margin trading funds, directly boosting broker profits. Giants like CITIC Securities and Guotai Haitong are expected to report first-half net profits exceeding 20 billion yuan, while China International Capital Corporation Ltd. and Caitong Securities project profit growth exceeding 70%.
CMSC was a direct beneficiary of the Q2 market surge. Of its projected 10-billion-yuan net profit, an estimated 6.7 to 7.7 billion yuan originated in Q2, representing a doubling in growth both sequentially and year-on-year. However, the source of CMSC's profit growth differs slightly from peers like CITIC Securities and Guotai Haitong.
Beyond proprietary trading and brokerage, paper gains from strategic investments have become a crucial profit source for securities firms. According to GF Securities research, since 2026, brokerages have accrued 6.6 billion yuan in paper gains from STAR Market strategic investments, with CITIC Securities at 2.4 billion and Guotai Haitong at 1.5 billion. Combined with China Securities and CICC, the total reaches approximately 5.66 billion yuan.
While CMSC's gains from such strategic investments are likely modest, its advantage lies in direct investments. Following Dapuwei's April listing, CMSC, through its investment arm, holds about a 2.13% stake. As of June 30th, this stake was valued at roughly 6.1 billion yuan. Analysis estimates, assuming an investment cost of around 1.5 billion yuan and accounting for a 15% liquidity discount and 25% income tax, point to paper gains of approximately 2.945 billion yuan from this investment.
Roughly estimated, gains from Dapuwei contributed around 40% to CMSC's Q2 net profit, a significant contribution. Looking ahead to the second half, CMSC's performance holds even greater promise.
Through various investment vehicles, CMSC holds a combined stake of approximately 0.841% in Changxin Technology, ranking among the highest publicly disclosed holdings by brokerages. According to Soochow Securities research, under a neutral scenario assuming a post-listing market capitalization of 3 trillion yuan for Changxin Technology, CMSC's corresponding holding value could exceed 20 billion yuan. Assuming a 60% recognition rate for investment net收益 (considering liquidity discounts), estimated paper gains could surpass 13 billion yuan—a figure already exceeding CMSC's full-year 2025 net profit of 12.3 billion yuan.
Furthermore, CMSC's participation in projects like Superfusion suggests its technology investments are poised to drive explosive earnings growth. However, this high growth is not guaranteed.
Both strategic and direct investments are subject to lock-up periods; current profit recognition reflects only paper gains. Upon lock-up expiration, significant stock price declines could lead to profit volatility. Optimistic projections for Changxin Technology's post-listing growth are based on its current high growth trajectory and market enthusiasm for tech stocks, but future realities remain uncertain.
Post-listing, the sustainability of the memory chip industry's boom will directly impact Changxin Technology's ability to maintain high growth. The market's valuation multiple is also unknown; a contraction from a hypothetical 30x P/E would necessitate recalculating market cap and paper gains. Additionally, any correction in the broader technology sector would affect Changxin Technology's stock performance. In essence, CMSC cannot definitively book these anticipated tens of billions in paper gains into its financial statements.
Overly Reliant on Market Conditions
Beyond the uncertainty of high profit growth, investors are more concerned about CMSC's business structure. While many brokerages enjoyed significant first-half profit growth due to favorable market conditions—relying on "fair weather"—CMSC appears even more dependent on these conditions compared to leading peers.
Financial reports show that in 2025, CMSC's wealth management and institutional business revenue reached 13.825 billion yuan, a substantial 35.1% year-on-year increase, accounting for 55.36% of total revenue and forming its core pillar—a higher proportion than other top brokers. Investment and trading business revenue accounted for 27.8% of total revenue.
This means over 80% of CMSC's revenue is highly correlated with secondary market trading activity and asset price fluctuations. Particularly, wealth management revenue still primarily derives from commissions and margin interest, making it vulnerable to shrinkage if market turnover declines. The significant first-half net profit increase is also directly linked to the market trading rebound. Whether this high-growth trend continues depends on the sustainability of market conditions and potential shifts in tech stock valuations.
This exposure highlights a structural weakness in CMSC's business: conservatism in proprietary trading. Proprietary trading income is a key determinant of brokerage performance. In 2025, proprietary business revenue for 30 listed brokerages grew approximately 32.6% year-on-year. In contrast, CMSC's proprietary trading revenue was 9.785 billion yuan, with a growth rate of only 2.7%.
Despite a broad A-share market recovery and major index gains in 2025, CMSC's minimal proprietary trading growth stems from its heavy bias towards fixed income. As of 2025, CMSC's trading financial assets totaled approximately 260 billion yuan, with bonds comprising about 170 billion yuan (65%). Funds and stocks accounted for roughly 75 billion yuan (28%), compared to 47% for CICC and 34% for CITIC Securities.
This asset allocation directly contributed to CMSC lagging in proprietary trading income. CITIC Securities reported 38.6 billion yuan in proprietary trading revenue last year, while CICC reported 14.2 billion yuan. This structural imbalance has caused CMSC to fall behind.
In recent years, while CMSC's asset scale and revenue have grown, its net profit ranking slipped from fourth to sixth last year, with both revenue and net profit market shares declining.
How to Break Free from Market Dependency?
Increasing focus on less cyclical businesses like asset management and international operations is a viable strategy. CMSC has been consciously cultivating these areas. For instance, in investment banking, it launched the "Antelope Leap Plan" in 2019 to serve quality tech innovation firms. Regarding overseas business, it announced a phased capital increase of 9 billion Hong Kong dollars late last year.
However, it is too early for these initiatives to substantially support overall performance. In CMSC's 2025 revenue breakdown, investment management contributed approximately 964 million yuan, investment banking 1.031 billion yuan, and overseas revenue around 1 billion yuan. Growth in these segments was modest, their share of total revenue remains low, and a significant gap exists compared to leading peers.
Heavy Burden for the New President
While CMSC grapples with persistent challenges, the president's position has been vacant for nearly two months. Following former President Wu Zongmin's retirement due to age last June, Zhu Jiangtao was transferred from a deputy president role at China Merchants Bank to become CMSC's president. On May 26th of this year, Zhu Jiangtao assumed the role of CMSC's chairman, concurrently resigning as president and temporarily performing presidential duties in his capacity as chairman until a successor is appointed.
With years of experience at China Merchants Bank, where he led the establishment of its risk management system, Zhu Jiangtao, as a seasoned "risk control" executive, has focused on wealth management transformation during his year at CMSC's helm, emphasizing risk control and maintaining operational prudence.
For CMSC, however, strategic breakthroughs alongside prudent operations are also crucial—a task likely reserved for the new president. A prolonged vacancy in the presidency could amplify risks related to strategic execution gaps and corporate governance concerns, necessitating a swift appointment.
Regarding potential candidates, external attention centers on current vice presidents. Liu Bo, vice president overseeing investment banking, is considered a frontrunner. With nearly 25 years at China Merchants Bank before joining CMSC in November 2024, his background in comprehensive banking finance and risk control aligns with the "bank-securities synergy" preference within the China Merchants system.
Another vice president, Liu Jie, who also serves as CFO and board secretary, grew his career within CMSC and has held positions at China Merchants Group and China Merchants Financial Holdings, giving him familiarity with the company's overall operations and front-to-back-office businesses. Analysis suggests if CMSC prioritizes its "AI Securities Company" strategy implementation and financial精细化 management, his chances of succession are considerable.
Beyond internal promotion, selecting talent from within the broader China Merchants Group system is also customary. Since 2018, successive CMSC presidents have come from the China Merchants Group system. Recently, there has been frequent reshuffling of senior management within the group's core financial segments.
On January 5th this year, China Merchants Bank announced a board resolution appointing Wang Xiaoqing as its president. Days later, CMSC's Chairman Huo Da resigned, transferring to become Party Committee Secretary and General Manager of China Merchants Financial Holdings Co., Ltd. Subsequently, Zhu Jiangtao, having been at CMSC for less than a year, formally succeeded as chairman.
CMSC's performance growth has shown signs of fatigue in recent years. Although 2025 saw a rebound, unless its structural business vulnerabilities are addressed, it risks falling further behind among top brokerages. With its first leadership change in nine years, major shareholder China Merchants Group likely harbors expectations for CMSC to break the impasse. The importance of the president, who bears direct operational responsibility, is self-evident. Selecting跨领域 talent from within the China Merchants system remains a distinct possibility.
Regardless of who assumes the role of CMSC's new president, the burden will be substantial. Standing on the high starting point of half-year profits exceeding 10 billion yuan, maintaining stability alone will be a formidable challenge.
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