Did the third-quarter beat come from a business recovery?

  • East Money’s net profit attributable to shareholders in the third quarter of 2026 was 3.843 billion yuan, up 9% year on year and 6% above JPMorgan’s forecast and 3% above Bloomberg consensus; it was nevertheless down 11% quarter on quarter. The earnings beat coincided with sequential weakness, chiefly because brokerage revenue held up better than the bank had expected.
  • Third-quarter net brokerage commission income was 2.83 billion yuan, down 8% quarter on quarter and up 1% year on year, exceeding JPMorgan’s forecast by 8%. Total quarterly market turnover fell 14% sequentially over the same period; the smaller decline in the company’s commission income helped push total revenue to 5.054 billion yuan, up 7% year on year and 4% above the bank’s forecast.

Why did investment income hold steady while margin financing and fund distribution cooled?

  • Third-quarter investment income was 704 million yuan, down just 2% quarter on quarter and up 24% year on year. JPMorgan noted that East Money has less equity investment exposure than traditional brokerages, so its investment income faced a smaller mark-to-market impact when the stock market was weak in the third quarter.
  • Margin financing underperformed the industry: the company’s margin financing balance at the end of the third quarter was 79.426 billion yuan, down 18% quarter on quarter, a larger decline than the market-wide fall of 14%. JPMorgan therefore concluded that it had lost margin financing market share. Net interest income for the quarter was 1.088 billion yuan, down 7% quarter on quarter and up 12% year on year, coming in 3% below the bank’s forecast.
  • Fund distribution revenue was 1.136 billion yuan, up 18% year on year but down 7% quarter on quarter. JPMorgan attributed the decline to weaker investment sentiment and lower fund sales, indicating that resilience in the retail client business did not extend to every revenue source.

Why was the operating profit surprise so small despite the revenue beat?

  • Third-quarter revenue fell 8% quarter on quarter, while operating expenses rose 4% sequentially and 17% year on year to 1.433 billion yuan, 10% above JPMorgan’s forecast. Administrative expenses rose 7% quarter on quarter and 18% year on year, partly explaining the expense overshoot.
  • Shrinking revenue and rising expenses pushed the cost-to-income ratio from about 25% in the second quarter to about 28%. Operating profit for the quarter was 3.621 billion yuan, down 12% quarter on quarter and up just 3% year on year. It was only 1% above the bank’s forecast, as expenses partly offset the revenue surprise.

Why does JPMorgan maintain its Neutral rating?

  • October market data weakened further: as of the report, average daily A-share turnover in October was 1.62 trillion yuan, below September’s 1.83 trillion yuan. Market-wide margin financing balances also recently fell to about 2.43 trillion yuan, below the 2.611 trillion yuan recorded at the end of the third quarter. East Money is relatively reliant on brokerage revenue, and lower trading activity and demand for margin financing will continue to constrain its earnings.
  • JPMorgan therefore sees downside risk to fourth-quarter earnings and expects limited changes to market consensus forecasts following the modest third-quarter beat. The bank also expects the company’s return-on-equity advantage over its Chinese brokerage peers to narrow, potentially depressing its valuation multiple.
  • JPMorgan maintained its Neutral rating with a June 2027 price target of 20.50 yuan. Using a segment-based price-to-earnings valuation and estimated 2026 earnings per share of 0.93 yuan, the target implies a price-to-earnings ratio of about 22 times.