Goldman Sachs: Maintains Neutral Rating on China CITIC Financial with Target Price Raised to HK$1.21

Goldman Sachs research report notes that considering China CITIC Financial's (02799) equity business income growth and lower debt costs, the target price is raised by 46% to HK$1.21, equivalent to 1.85x 2025E P/B.

The report maintains a neutral rating, with 2025e P/B and 0% upside space.

Goldman Sachs' main views are as follows:

Forecast 1H25 net profit growth of 12.5%-16.3%.

China CITIC Financial announced its performance forecast: 1H25 net profit is expected to be approximately CNY 60-62 billion, a year-on-year increase of around 12.5% to 16.3%, excluding the impact of gold leasing companies; and a year-on-year increase of around 23.9% to 28.2%.

The company plans to achieve its "three-year significant improvement in operating quality" strategic goal by the end of 2025, while moving towards its 2026-27 "five-year become industry benchmark" target.

The company expects profit growth from equity business income and lower financing costs.

In 1H25, the company increased its stake in China Merchants Bank and Industrial Bank by accounting for equity method, with main business income growing year-on-year. The company stated that it will continue to increase main business investment, with significant growth in equity business income and asset return.

In the first half of 2025, the company increased its stake in China Merchants Bank H shares by HK$45.7 billion, and A shares and H shares of Industrial Bank by HK$2.6 billion and HK$2.8 billion respectively, with estimated one-time investment returns of CNY 179-206 billion (1H24: -CNY 0.1 billion).

In contrast to the company's November 2024 announcement of a CNY 503 billion investment plan, as of now, the company has completed 78% of its stake increase plan for China Merchants Bank and 48% of its stake increase plan for Industrial Bank.

1) Lower financing costs: The company's financing ability continues to strengthen, with innovative financing tools and lower financing costs. The company is continuously optimizing its debt structure, estimating that the 2024 second half financing cost was 3.63%, a year-on-year decrease of 20bp or 17bp.

7月末公司发行100.1亿元云帆1期实体赋能资产支持专项计划，半年期发行利率1.74%、1年期发行利率1.79%，显著低于2H24负债成本水平。

2）Impairment loss and non-performing assets increase, solidifying provisioning foundation: The company disclosed 1H25 impairment losses of approximately CNY 218 billion, with future risk resistance capacity continuously strengthened. As of the end of 2024, the coverage ratio for restructured non-performing assets was 54%, AC debt tools were 56%, and FVOCI debt tools were 156%.

3）Enter MSCI China Index on August 26th: The company will join the MSCI China Index components, with the adjustment to be implemented after market close on August 26th. Goldman Sachs estimates that there may be a potential inflow of USD 1.1 billion.

Authorized board decision to raise capital

On May 28th, the company's shareholders' meeting agreed to authorize the board to issue new shares with a general authorization, allowing them to decide individually or simultaneously to issue, distribute, or process mainland/H-shares, with a maximum of 20% increase in the number of issued mainland/H-shares within the effective period.

Risk warning: Equity investment returns may be lower than expected, and impairment losses may be higher than expected; raising capital will dilute shareholder equity.