CITIC Securities’ third-quarter investment income plunges; lower funding costs offset only part of the pressure
CITIC Securities’ third-quarter net profit fell 41% quarter on quarter, with investment income the main drag; investment banking, net interest income and lower expenses provided some cushion. Goldman Sachs cut its earnings forecasts and A- and H-share price targets.
Original source：Goldman SachsFirst published on Unhidea：Original source date：
Key takeaway
A sharp drop in investment income left CITIC Securities’ third-quarter results below Goldman Sachs’ expectations. Stable fee income and lower funding costs provided some cushion, but were insufficient to prevent a marked decline in profitability.
Why did third-quarter results fall short of expectations?
In the third quarter of 2026, CITIC Securities recorded total net revenue of 16.9 billion yuan and net profit of 7.9 billion yuan, down 27% and 21% year on year, and 36% and 41% quarter on quarter, respectively. They were 29% and 28% below Goldman Sachs’ forecasts.
The main shortfall came from investment income, which was 3.7 billion yuan in the third quarter, down 71% year on year and 76% quarter on quarter, and 71% below Goldman Sachs’ forecast. Investment income reached 15.5 billion yuan in the second quarter, creating a high comparison base.
Goldman Sachs believes weaker equity markets and relatively conservative valuations of AI-related investments jointly weighed on performance. Average daily A-share turnover fell 21% quarter on quarter to 2.3 trillion yuan in the third quarter, while the CSI 300 Index fell 12% quarter on quarter.
What does volatility in investment income mean?
Investment-related income includes not only traditional proprietary investments but also derivatives, capital intermediation and listed private equity investments, so quarterly performance is affected by fluctuations across multiple businesses and markets.
According to the company, although AI companies in its portfolio made progress toward listing, CITIC Securities remained conservative in recognizing gains on related investments in the third quarter. Goldman Sachs believes neither the strong second-quarter performance nor the weak third-quarter performance should be taken directly as a normal quarterly level.
Which businesses cushioned the decline in investment income?
Fee businesses were relatively stable: third-quarter brokerage revenue was 4.9 billion yuan, down just 1% quarter on quarter; investment banking revenue was 2.1 billion yuan, up 16% quarter on quarter. Over the same period, A-share IPO proceeds reached 128 billion yuan, nearly doubling quarter on quarter.
Net interest income rose to 1.5 billion yuan, up 109% quarter on quarter and 106% above Goldman Sachs’ forecast. Goldman Sachs believes the company replaced higher-cost funding in a low-interest-rate environment, lowering interest expenses; the size and duration of this benefit depend on subsequent funding-cost trends.
Why did lower expenses fail to stabilize returns?
Third-quarter operating expenses were 7.7 billion yuan, down 18% quarter on quarter; however, revenue fell more sharply, and the cost-to-income ratio rose from 35.3% in the second quarter to 45.4%.
Annualized return on equity fell from 15.3% in the second quarter to 8.6%, while annualized investment return fell from 6.1% to 1.4% over the same period, showing the effect of investment performance on quarterly returns. Active leverage also fell from 5.1 times to 4.7 times, reducing the contribution of balance-sheet expansion to short-term returns.
How did Goldman Sachs adjust its earnings forecasts and valuations?
Goldman Sachs cut its net profit forecasts for 2026 through 2028 by 11%, 2% and 3%, respectively, to 40.4 billion, 40.7 billion and 42 billion yuan. This mainly reflects lower investment income, partly offset by higher net interest income and lower expenses.
Goldman Sachs maintained its buy rating on the A shares and neutral rating on the H shares, cutting its 12-month price targets by 7% to 41.72 yuan and 31.27 Hong Kong dollars, respectively. The target price cuts were larger than the cut to its 2027 net profit forecast, partly reflecting dilution of earnings per share from an increased share count; the bank sees sustained return on equity as key to medium-term valuation.
