-According to the preliminary result of CITIC Securities (¡§CS¡¨ or ¡§the Group¡¨) announced yesterday (21st Jul), in 1H2014, profit for the year of CS increased significantly by 114.35% y-y to RMB5, 824 million with net profit of RMB4,076 million, up 93% y-y approximately;

-Total assets increased strongly by 25.2% to RMB33.9747 billion compared with the end of 2013, and the BVPS was RMB8.14, up 2.3% during the same period;

-The large profit growth of CS is mainly due to the increase in the number of companies that was consolidated to CS¡¦s financial statements, and non-recurring operating gains grew significantly because of the transfer of the entire equity interests in its wholly-owned subsidiaries of Tianjin Jingzheng Property Services Limited and Tianjin Shenzheng Property Services Limited to CITIC Qihang Securities Investment Private Fund;

-Due to the strong market demand, CS¡¦s businesses recovered obviously in the recent two years, and the profit growth is stronger than our expectation according to the performance in 2013 and 1H2014, however, considering the increase of the market volatility and the Group¡¦s operating expenses in future, we maintain CS¡¦s 12-month target price on HK$22.30, 22.7% higher than the current price, equivalent to 20.3xP/E and 2.0xP/B in 2015E respectively. Upgrade to Buy rating.

How we view this

CS is the largest securities company in China with the leading position in the industry, especially the Group¡¦s innovative business experienced strong development. The commission fees and investment incomes increased strongly in the recent two years because of the recovery of domestic capital market. The commission fee grew largely 50.9% and 110.4% y-y respectively in 2013 and 1Q2014, and we expect such income would increase by 100% y-y approximately in 1H2014, but the Group¡¦ profit should be lower than that of 2009.

Investment Action

Currently the market environment trends to be positive, we believe there are large development of the market environment if the cross-border trading between Shanghai and Hong Kong could be implemented successfully in this Oct, investments will become more active, and we hold the optimistic view on CS¡¦s future development based on the leading position in the industry, its incomes will maintain strong growth, and therefore we maintain CS¡¦s 12-month target price on HK$22.30, 22.7% higher than the current price, equivalent to 20.3xP/E and 2.0xP/B in 2015E respectively. Upgrade to Buy rating.

Risk

Larger-than-expected decrease of commission fees;

Investment gains declined strongly;

Share decrease of share price affected by the market environment.

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