J.P. Morgan: Huatai Securities’ third-quarter profit falls 35% as investment income plunges and impairment reversals support part of profit

Why did profit fall short of analyst expectations?

Huatai Securities reported net profit attributable to shareholders of RMB 3.349 billion for the third quarter of 2026, down 35% year on year and 51% quarter on quarter, and 22% below JPMorgan’s forecast.
Credit impairment reversals totaled RMB 944 million during the quarter, equivalent to 24% of pretax profit. JPMorgan regards this support as nonrecurring and believes the reversals may be related to the 16% quarter-on-quarter decline in the margin financing and securities lending balance in the third quarter.
Total revenue and other gains fell 39% quarter on quarter to RMB 8.09 billion, while operating expenses rose 19% to RMB 5.103 billion, further squeezing profit.

Third-quarter investment income was RMB 2.651 billion, down 71% quarter on quarter and 46% year on year, and 43% below JPMorgan’s forecast. The bank mainly attributed the decline to stock market weakness: the CSI 300 and STAR 50 indices fell 12% and 31%, respectively, during the quarter.
JPMorgan believes the pressure could persist into the fourth quarter: as of the report date, the CSI 300 and STAR 50 indices had fallen a further 9% and 24%, respectively, during the fourth quarter.

Third-quarter net brokerage revenue fell 13% quarter on quarter, although it still rose 3% year on year. Its quarter-on-quarter performance was weaker than CITIC Securities’ decline of 1% and China International Capital Corporation’s decline of 8%.
The margin financing and securities lending balance fell 16% quarter on quarter, a greater decline than the industry-wide balance’s 14% fall; JPMorgan therefore concluded that Huatai had lost some market share in the business.

Third-quarter net investment banking fee income rose 61% quarter on quarter and 40% year on year to RMB 1.091 billion; asset management fees rose 34% quarter on quarter and 29% year on year to RMB 598 million. Growth in the two businesses was still insufficient to offset weakness elsewhere.
JPMorgan expects the market’s consensus forecast for Huatai’s 2026 earnings per share to be revised down by a mid- to high-single-digit percentage following the results, and expects a negative share-price reaction.
The bank maintained its Overweight rating on Huatai’s H shares and its HK$ 22.10 price target. Its medium-term investment thesis includes the company’s retail brokerage franchise, industry-leading monthly active users on its mobile app, and rising market share in Hong Kong IPOs.