Summary

-According to the latest data of China Galaxy Securities (CGS or the Company), the profits grew rapidly. As at the end of Dec 2014, monthly operating incomes amounted to RMB2.2 billion, with net profit of RMB0.63 billion, up 104.5% and 61.5% m-m respectively;

-The Company's incomes increased sharply mainly due to the obvious development of the market environment, and the trading volume grew significantly, especially for the margin trading business. Therefore, on Jan 20th, CGS announced to issue new H Shares and reschedule the A Share Offering for 12 months, and 60% of the funds will be used for margin trading business and dealer-quoted securities repurchase business;

-In our view, one of main reasons of the delay of the Company's A Share Offering is the changes of shareholders` structure. One of main shareholders of CGS transferred 110 million shares with total amount of 935 million, equivalent to 8.5/share this month. Meanwhile, according to the market environment and the Company's operating performance, its profits grew strongly, therefore we still have the confidence in CGS's performance in future, and increase its target price to HK$12.50, around 43% higher than the current price, and maintain Buy rating.

A little effect in the delay of the A Shares Offering

According to the data of CGS, the profits grew rapidly. As at the end of Dec 2014, monthly operating incomes amounted to RMB2.2 billion, with net profit of RMB0.63 billion, up 104.5% and 61.5% m-m respectively. Total operating incomes achieved to RMB10.543 billion, and net profit was 3.28 billion up 25% and 54% respectively.

The Company's incomes increased largely mainly due to the strong development of the margin trading business. By the end of 2013, the market shares of net incomes of CGS's margin trading business was 5.81%, ranked No.5 in the industry, after CITIC Securities, Guotai Junan, Huatai Securities and GF Securities. In 1H2014, the balance of the Company's margin trading business was RMB21.271 billion, increased largely by 81.31% y-y, with a market share of 5.23%; turnover of such business amounted to RMB179.147 billion, up 12.96% y-y; there were 0.149 million credit fund accounts in total, grew strongly 251.33% y-y, and outstanding balance of margin and securities refinancing business was RMB640,500.

Considering the strong market demand, the Company plans to issue new H Shares to increase the capital in order to support the development of relative businesses. Due to the changes of shareholders, one of main shareholders of CGS transferred 110 million shares with total amount of 935 million, equivalent to 8.5/share this month. Therefore, the A Share Offering is delayed, and however, it will issue no more than 2 billion new H Shares, representing not more than 26.53% of the total share capital before the issue, and 20.97% of total share capital of the Company after the issue. The funds raised from the New H Share Issue will be used in: 60% for the margin trading business and dealer-quoted securities repurchase business, 15% for other capital-based intermediary business, 15% for investment and innovative business, and 10% for replenishing the working capital.

Due to the development of the market environment, we expect CGS's incomes would increase obviously, and the profit growth would maintain at the high level, therefore we have the confidence in CGS's performance in future, and increase its target price to HK$12.50, around 43% higher than the current price, equivalent to 20.5xP/E and 2.6xP/B in 2015 respectively, and maintain Buy rating.

FINANCIALS

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