East Money’s third-quarter results: Fund distribution beats expectations, so why is Goldman Sachs still cutting its earnings forecasts?
Fund distribution and investment income offset some weakness in brokerage, but distribution growth is increasingly reliant on sales volume, while back-end fee-earning capacity continues to decline. Goldman Sachs cut its earnings forecasts for the next three years and maintained its Sell rating.
Original source：Goldman SachsFirst published on Unhidea：Original source date：
Key takeaway
Growth in fund distribution scale supports near-term revenue, but pressure on back-end fees, together with cuts to brokerage and interest income forecasts, leaves Goldman Sachs expecting East Money’s profit to decline in 2027.
Profit was broadly in line with expectations. What changed beneath the surface?
East Money’s third-quarter 2026 net total revenue was 5.877 billion yuan, up 9% year on year and down 10% quarter on quarter; net profit after tax was 3.843 billion yuan, up 9% year on year and down 11% quarter on quarter. The figures were 2% and 3% below Goldman Sachs’ respective forecasts, and the bank considered overall results broadly in line with expectations.
The divergence in the revenue mix was more pronounced: fund distribution revenue was 1.136 billion yuan, 18% above Goldman Sachs’ forecast; other income, mainly investment income, was 823 million yuan, 14% above expectations. The two positive contributions offset part of the brokerage revenue shortfall, but core revenue was still 4% below expectations.
Expenses fell more slowly than revenue: operating expenses declined 4% quarter on quarter to 1.378 billion yuan, while the cost-to-income ratio rose 1 percentage point quarter on quarter to 23%; annualized return on equity was 15.3%, down 2.5 percentage points quarter on quarter.
Why did brokerage and margin financing weigh on revenue?
A cooling market was the common backdrop: average daily A-share turnover fell 21% quarter on quarter to 2.3 trillion yuan in the third quarter, while the market-wide margin financing balance declined from 3 trillion yuan in the second quarter to 2.6 trillion yuan. The quarter-on-quarter decline in East Money’s related businesses was consistent with the industry trend.
Net fee and commission income, mainly brokerage commissions, was 2.83 billion yuan, down 8% quarter on quarter and up just 1% year on year, 11% below Goldman Sachs’ forecast. The bank therefore continues to monitor the ability to convert trading activity into commission income.
At quarter-end, the company’s margin financing balance was 79.426 billion yuan, down 18% quarter on quarter and 19% below Goldman Sachs’ forecast; net interest income was 1.088 billion yuan, down 7% quarter on quarter and up 12% year on year, 4% below expectations but still broadly in line overall.
More funds were sold. Why did that not change the assessment of fees?
Third-quarter fund distribution revenue rose 18% year on year and, although it fell 7% quarter on quarter, was still the most notable bright spot relative to Goldman Sachs’ expectations. The bank raised its sales-volume assumptions on that basis, while assessing scale expansion separately from the ability to earn fees per unit of assets.
From the first half of 2025 to the first half of 2026, sales of non-money-market funds rose from 626 billion yuan to 1.255 trillion yuan, assets under distribution rose from 717 billion yuan to 1.009 trillion yuan, and total fund distribution fees rose from 1.42 billion yuan to 2.08 billion yuan.
Scale growth was accompanied by declining back-end income. In Goldman Sachs’ breakdown, assuming a front-end fee rate of 12 basis points, back-end income fell from 660 million yuan to 580 million yuan, the implied back-end fee rate fell from 9.3 basis points to 5.7 basis points, and its share of total distribution fees fell from 47% to 28%. This led the bank to attribute recent growth to sales volume without raising its medium-term fee-rate assumption.
Why did the target price fall despite higher distribution forecasts?
Goldman Sachs raised its fund distribution revenue forecasts for each year from 2026 to 2028 by 5%, but cuts to brokerage and net interest income had a larger effect. In particular, it cut its net interest income forecasts for 2027 and 2028 by 24% and 23%, respectively, and ultimately reduced its net profit forecasts for the three years by 3%, 4% and 2%, respectively.
After the revisions, Goldman Sachs expects net profit for 2026 through 2028 to be 15.24 billion, 12.96 billion and 12.81 billion yuan, respectively, with year-on-year growth of approximately 26%, -15% and -1%; return on equity is expected to fall from 15.6% to 11.9% and 10.6%. The near-term improvement in distribution did not change its view that earnings will decline after 2026.
Goldman Sachs maintained its valuation at 20 times forward earnings, cut its 12-month target price by 4% from 17.01 yuan to 16.39 yuan, and maintained its Sell rating. Upside factors it cited include further improvement in trading volumes, higher fund distribution fee rates and increased investment income.
