East Money: Proprietary trading supports third-quarter earnings; Citi sees upside from a recovery in turnover
East Money’s third-quarter net profit rose 8.9% year on year, but brokerage revenue, margin financing and securities lending balances, and client funds fell from the previous quarter, while cost efficiency also weakened. Citi maintains its Buy rating based on the potential earnings upside from a recovery in turnover, although fourth-quarter turnover data remains in decline.
Original source：Citi ResearchFirst published on Unhidea：Original source date：
Key takeaway
Citi believes East Money could benefit from a recovery in A-share turnover, but third-quarter earnings resilience was mainly supported by proprietary trading gains, while brokerage monetization, client funds and cost efficiency faced pressure.
Why did third-quarter profit still grow?
East Money reported net profit attributable to shareholders of 3.843 billion yuan for the third quarter of 2026, up 8.9% year on year. Citi expects most traditional Chinese brokerages to report year-on-year profit declines over the same period and therefore regards East Money’s performance as relatively strong.
The support came from other income, which consists mainly of proprietary trading gains and rose 27% year on year in the third quarter. Fixed-income assets accounted for 84% of the company’s proprietary portfolio in the first half. At the end of the third quarter, China’s ten-year government bond yield was down 5 basis points from the previous quarter, compared with a rise of 21 basis points in the same period a year earlier; together with a low base, this supported returns for the quarter.
Costs did not improve in tandem: third-quarter operating expenses rose 18% year on year, faster than the 6.8% increase in revenue, and the cost-to-income ratio rose 2.4 percentage points year on year to 26%. Profit growth occurred alongside weaker operating efficiency.
Beyond cooling turnover, what pressures face brokerage and margin financing and securities lending?
Average daily A-share turnover was 2.26 trillion yuan in the third quarter, down 21% quarter on quarter and up 8.5% year on year. East Money’s brokerage commission income was 2.83 billion yuan, down 8.4% quarter on quarter and up just 1.3% year on year. The business accounted for about 58% of total revenue for the quarter. Citi believes its year-on-year growth lagged turnover, potentially reflecting a decline in the blended commission rate or a loss of market share.
At the end of the third quarter, margin financing and securities lending balances stood at 79.6 billion yuan, down 18% quarter on quarter, while market share fell 0.1 percentage points from the second quarter to 3.1%. Net interest income for the quarter fell 6.9% quarter on quarter to 1.09 billion yuan. The scale and revenue of the financing business also contracted.
Client funds weakened at the same time: funds available for securities purchases fell 30% quarter on quarter. Citi estimates net client asset outflows of 64 billion yuan in the third quarter, compared with net inflows of 35 billion yuan in the second quarter.
Can fund-related business cushion pressure on trading?
Non-brokerage commission income was 972 million yuan in the third quarter, up 19% year on year, showing some resilience. But it fell 7.8% quarter on quarter, weaker than its second-quarter performance of 16% quarter-on-quarter growth and 65% year-on-year growth.
This performance came against a weaker industry sales backdrop: third-quarter fund sales across the industry fell 37% year on year, while sales of equity and mixed funds fell 47%, partly due to a high base a year earlier. Over the same period, the CSI 300 Index fell 12% quarter on quarter. The relative resilience of non-brokerage income therefore did not change its quarter-on-quarter decline.
With turnover still falling, why does Citi maintain its Buy rating?
As of the report date, fourth-quarter average daily A-share turnover had fallen further to 1.57 trillion yuan, down 31% from the third quarter and 20% year on year; the CSI 300 Index fell 5.8% in October. Citi’s optimism rests on a potential turning point: it believes selling pressure from ultra-high-net-worth individuals raising money to pay taxes was concentrated in 9–October and will gradually ease after the 22 October settlement deadline, while the continuing correction has also increased the likelihood of regulatory support for the market.
Turnover sensitivity is key to transmitting a rebound into earnings. Under Citi’s model, every 10% increase in average daily A-share turnover lifts East Money’s earnings by about 4.3%, the highest among the Chinese brokerages it covers. More than 90% of the company’s revenue comes from trading-driven businesses, which also means persistently weak turnover would constrain earnings.
Citi believes the stock’s 20% decline year to date and underperformance of the CSI 300 Index by 7 percentage points have reflected negative factors to a significant extent, and maintains its Buy/High Risk rating. Its target price of 29.32 yuan uses a forecast price-to-earnings multiple of 30 times for 2026; at the report date, the share price implied a forecast price-to-earnings multiple of about 17 times for 2027.
