Summary

-Incomes of Haitong Securities (HTS) increase sharply, by the end of Sep, its net profit increased by 123.6% y-y to RNB 11.065 billion, with the EPS of RMB 1.06. Meanwhile, HTS announced the latest incomes of Oct last week, the net profit still maintained at the high level, increased by 33% to RMB1.12 billion compared with the end of Sep. We expect HTS's net profit would achieve to RMB14 billion approximately in 2015;

-Recently the markets pay close attention to the refunction of IPO announced suddenly by CSRC last weekend. According to the new rules, China will further improve the system of issuing shares, and the IPO will not have advance payments, which needs not freeze the capital in advance. Additionally, after the reopening of IPO, the capital will receive the placement of shares based on the market value;

-In our view, the market environment starts to be stabilized after the sharp decrease in 3Q, the incomes of brokerage firms are increasing obviously, therefore the operating performance would be improved in 4Q, and we expect HTS's profit growth would maintain at the high level continually. Meanwhile, the reopening of IPO will enhance the market's confidence, which would be helpful for the recovery of the market environment, and positive for the firms` businesses in the medium and long run. Therefore, we still have the confidence in HTS's performance in future, and maintain its target price at HK$23.90, around 59% higher than the latest closing price, equivalent to 9.8xP/E and 1.5xP/B in 2016 respectively, and recommend Buy rating.

The reopening of IPO positive for brokerage firms` performance in the medium and long term

HTS's incomes maintained the large growth although there was a large volatility in the market in 3Q. HTS announced the latest incomes of Oct last week, the net profit still maintained at the high level, increased by 33% to RMB1.12 billion compared with the end of Sep. We expect HTS's net profit would achieve to RMB14 billion approximately in 2015.

Meanwhile, CSRC suddenly announced the reopening of IPO last weekend. According to the new rules, China will further improve the system of issuing shares, and the IPO will not have advance payments, which needs not freeze the capital in advance. Additionally, after the reopening of IPO, the capital will receive the placement of shares based on the market value.

In our view, the market environment starts to be stabilized after the sharp decrease, the incomes of brokerage firms are increasing obviously in 4Q, and we expect HTS's profit growth would maintain at the high level continually. Meanwhile, the reopening of IPO will enhance the market's confidence, which would be helpful for the recovery of the market environment in the middle and long run. According to the new rules, the changes of IPO will release the market liquidity obviously, and encourage the investors to hold the shares in the long term due to the placement based on the market value, which will reduce the speculation to some extent, and be helpful for build more rational investment environment. It is also positive for the brokerage firms` businesses. Of course, there are still 28 companies waiting for the list, and we expect it will freeze the amount of RMB2 trillion approximately based on the old rules, which would have the negative impact for the market in the short run. Therefore, we believe the firms including HTS would face the risk of the large volatility in prices recently. In all, we still have the confidence in HTS's performance in future, and maintain its target price at HK$23.90, around 59% higher than the latest closing price, equivalent to 9.8xP/E and 1.5xP/B in 2016 respectively, and recommend Buy rating. (Closing price as at 9 Nov 2015)

Risk

The stronger competition causes the market share to decline;

Profits decrease obviously due to the decrease of investment gains;

Share price declines sharply because of the deterioration of the market environment.

FINANCIALS

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