Southeast Asia Expansion And Green Finance Will Shape Future Markets

Key Takeaways

• Expansion in international markets and high-growth sectors positions CITIC Securities for diversified revenue streams and increased global market share.
  
• Focus on green finance, ESG, and digital strategies may attract environmentally responsible investors and improve operational efficiency, enhancing revenue and net margins.
  
• Declines in equity and bond issuance and the investment business highlight challenges, while reliance on global markets introduces geopolitical risks, impacting future earnings and profitability.

Catalysts

Provides various financial products and services in Mainland China and internationally.

• The growth in Hong Kong and international businesses, along with the expansion in Southeast Asia, Europe, and the Middle East, positions CITIC Securities to capture more global market share and diversify revenue streams, potentially increasing future revenues and earnings.
  
• CITIC Securities' focus on green finance, ESG integration, and sustainability initiatives could attract more investors and clients seeking environmentally responsible investments, thereby boosting revenue and improving net margins.
  
• Expansion into high-growth sectors such as new energy equipment, advanced manufacturing, and biotechnology allows CITIC Securities to capitalize on emerging industries, potentially leading to higher revenues and improved margins.
  
• The implementation of cross-border Wealth Management Connect and strengthening of international networks signal potential future growth in client base and assets under management, which can drive revenue growth and enhance profitability.
  
• The integration of advanced risk management systems and digital finance strategies, such as the AI Plus Platform, could enhance operational efficiency and cost management, supporting improved net margins and earnings.

CITIC Securities Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CITIC Securities's revenue will grow by 11.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 34.8% today to 35.2% in 3 years time.
• Analysts expect earnings to reach CN¥29.6 billion (and earnings per share of CN¥2.0) by about April 2028, up from CN¥20.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥34.4 billion in earnings, and the most bearish expecting CN¥25.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.4x on those 2028 earnings, up from 18.8x today. This future PE is lower than the current PE for the CN Capital Markets industry at 28.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.86%, as per the Simply Wall St company report.

CITIC Securities Future Earnings Per Share Growth

Risks

• The domestic equity and bond issuance scale saw a significant decline of 72%, which could impact future revenues by limiting growth opportunities in investment banking and capital raising.
  
• Despite the growth in revenue, profit attributable to shareholders only increased by 10%, suggesting potential pressure on net margins if costs increase without corresponding revenue growth.
  
• The investment business saw a revenue decline of 34%, with the underwriting business revenue dropping by 38%, indicating challenges that could negatively impact future earnings if conditions do not improve.
  
• Although international business contributed positively, reliance on global markets introduces exposure to geopolitical risks and regulatory changes that can affect earnings and profitability.
  
• The leverage ratio increased by 0.24 folds, which could pose risks to net earnings if interest rates rise or if there is a downturn affecting the company's ability to service its debt.

Valuation

• The analysts have a consensus price target of CN¥33.904 for CITIC Securities based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CN¥42.04, and the most bearish reporting a price target of just CN¥23.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥84.2 billion, earnings will come to CN¥29.6 billion, and it would be trading on a PE ratio of 24.4x, assuming you use a discount rate of 12.9%.
• Given the current share price of CN¥26.54, the analyst price target of CN¥33.9 is 21.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.