Summary

-According to Central China Securities's (CCS or the Group) latest record, its monthly net profit increased significantly in Oct compared with Sep, up 129% to RMB790 million approximately. CCS's incomes increased strongly due to the bull market in 1H, however the business incomes increased slowly in 3Q because of the large market volatility recently, but regarding its full-year outlook, we still believe the profits of the Group should be maintained at the high level;

-Meanwhile, the management tries to find more profit drivers from the business restructure. According to the latest announcement, it was approved to set up a life insurance company as a leader in Henan Province, and recently it also issued a short-term notes with the amount of RMB1 billion, which will bring more clients and business supports for the Group's long-term development, representing CCS's strong competitive advantages in Henan Province;

-We think CCS owns strong government background, a broad customer base in Henan Province and expands several business platforms actively, it has a great potential of business development in the long term. Although there was the large market volatility in 3Q, the Group's performance would become better in 4Q according to the data in Oct, and we are still confident about its full-year results. While we maintain our target price at HKD6.50, which is 48% higher than its latest closing price, equivalent to 2016 6.5xP/E and 1.6xP/B respectively, and maintain the BUY rating. (Closing price as at 3 Dec 2015)

Risk

The large volatility of profits of stock brokerage business and investment banking business;

The large demand of capital and talent;

Share price dropped sharply due to the deterioration of stock markets in the short term.

FINANCIALS

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