How solid was the third-quarter profit growth?

  • China Merchants Securities reported net profit of 6.7 billion yuan for the third quarter of 2026, up 81% year on year but down 10% quarter on quarter and slightly below Bank of America’s forecast of 7 billion yuan. Fee income and trading income were also slightly below the bank’s expectations.
  • Revenue and net profit for the first three quarters were 34 billion yuan and 17 billion yuan, respectively, up 87% and 95% year on year. Annualized return on equity rose to 18.3%.

How much did ChangXin Technology contribute in gains?

  • Third-quarter trading income rose 129% year on year, driven mainly by investment gains related to ChangXin Technology’s IPO, but it was slightly below market expectations given China Merchants Securities’ shareholding.
  • China Merchants Securities recorded 8.7 billion yuan in fair value gains during the quarter. Bank of America estimates that about 6 billion yuan came from the post-listing revaluation of ChangXin Technology shares held by its alternative investment subsidiary. A liquidity discount of about 40% was applied to the valuation because the shares are subject to a one-year lockup.
  • Losses from declines in other equity holdings offset some of the gains. Bank of America understands that China Merchants Securities had already recognized some revaluation gains on ChangXin Technology through investment income in the second quarter.

How did other businesses perform?

  • Third-quarter brokerage commissions fell 16% year on year, while underwriting fees rose 17% year on year. China Merchants Securities was also a joint underwriter of ChangXin Technology’s IPO during the period.
  • Net interest income rose 35% year on year over the same period, outperforming peers and providing another source of growth beyond investment gains.

Why does Bank of America expect earnings momentum to weaken?

  • Bank of America believes most of the earnings boost from ChangXin Technology was one-off. The bank noted that ChangXin Technology’s share price had fallen in the fourth quarter as of the report, and China Merchants Securities’ subsidiary could incur fair value losses in the fourth quarter, in turn weighing on trading income.
  • Bank of America maintained its earnings forecasts and underperform ratings on the A- and H-shares, with price targets of 15.50 yuan and 13.50 Hong Kong dollars per share, respectively. The bank expects net profit of about 18.965 billion yuan in 2026, falling to about 14.214 billion yuan in 2027. An attractive dividend yield of more than 7% on the H-shares is the main upside risk to its assessment.