Tonghuashun’s third-quarter results beat BofA expectations, but cash receipts and contract liabilities point to cooling growth
Tonghuashun’s net profit rose 53% year on year in the third quarter of 2026, benefiting from business growth and deferred revenue recognition. However, growth in sales cash receipts slowed to 9%, and contract liabilities fell 8% quarter on quarter. BofA maintained its Buy rating while cutting its earnings forecasts and target valuation, lowering its price target from 290 yuan to 255 yuan.
Original source：BofA SecuritiesFirst published on Unhidea：Original source date：
Key takeaway
Tonghuashun is still recognizing revenue from strong contract signings in the first half, but momentum in new business has slowed. This is the key reason BofA cut its earnings forecasts and price target despite the third-quarter beat.
Why did third-quarter results exceed BofA’s expectations?
Tonghuashun reported third-quarter 2026 revenue of 2.1 billion yuan and net profit of 1.08 billion yuan, up 45% and 53% year on year, respectively. Both exceeded BofA’s expectations. Strong growth in value-added IT services and online marketing revenue, together with the deferred recognition of some revenue, supported the quarter’s performance.
Revenue for the first three quarters was 4.8 billion yuan and net profit was 2 billion yuan, up 47% and 69% year on year, respectively. Profit grew faster than revenue, with gross margin rising from 89% a year earlier to 92% and the cost-to-income ratio falling from 48% to 45%.
The improvement in expenses came mainly from lower research and development expenses, whose impact outweighed higher sales and marketing expenses. The improvement in profitability therefore reflected contributions from both gross margin and expenses; not all expenses were shrinking.
Which figures show that new business is cooling?
Cash received from sales of goods rose only 9% year on year in the third quarter, well below the 60%–72% growth rates in the first and second quarters, and broadly in line with growth in average daily market turnover. On this basis, BofA concluded that new contract growth slowed from earlier levels during the recent market pullback.
Contract liabilities at the end of September were down 8% from the end of June. BofA interpreted this as a slowdown in advertising contract growth during the quarter and, on that basis, expects weaker revenue growth momentum ahead: revenue recognized in the quarter remained strong, while the signal from new contracts was weaker.
The transmission channel is client budgets. BofA believes a weaker market environment could depress marketing budgets at funds and brokerages, and that subdued new fund issuance and marketing demand could persist through year-end.
Why is full-year growth still supported despite slower new contract growth?
There is a time lag between contract signing and revenue recognition. BofA expects strong contract growth in the first half of 2026 to continue converting into revenue, so it remains positive on full-year growth. This also explains how strong third-quarter results and cooling new business can occur at the same time.
But subsequent forecasts have been adjusted. BofA lowered its full-year average daily market turnover assumption from 2.5 trillion yuan to 2.3 trillion yuan and, taking slower contract liability growth into account, cut its earnings-per-share forecasts for 2026–2028 by approximately 2%–3%. First-half contracts provide support, but did not offset the effect of weaker new business on the forecasts.
Why maintain a Buy rating while cutting the price target to 255 yuan?
BofA lowered its price target from 290 yuan to 255 yuan, reflecting adjustments to both earnings forecasts and the valuation multiple. The new target uses a price-to-earnings multiple of 40 times average forecast earnings for 2026–2027, compared with 45 times previously. The lower multiple reflects weaker market sentiment.
The Buy rating remains based on Tonghuashun’s ability to monetize retail investor traffic, its position in brokerage and fund advertising, and its AI capabilities. BofA believes these strengths support earnings growth, although the pace of near-term growth remains affected by A-share trading activity and client marketing budgets.
