Goldman Sachs: GF Securities (1776.HK) Earnings Review: Beat on Record Investment Income and Resilient AM; Leverage and Offshore Strategy in Focus
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GF Securities reported a strong 1Q26, with revenue of RMB 11.7 billion and net profit of RMB 5 billion, surging 61% and 72% year-over-year, respectively, and beating Goldman Sachs estimates by 10% and 14%. The outperformance was largely propelled by record-high investment income, which reached RMB 5.6 billion, exceeding expectations by 41%. This was driven by a 52% expansion in financial investment assets and an improved investment yield of 4.7%.
Resilient asset management revenue of RMB 2.5 billion, bolstered by the ETF boom and stable fee rates, surpassed estimates by 18%. Brokerage commissions aligned with broader industry trends, while investment banking revenue softened due to a loss in ECM market share. Overall cost control was favorable, with the cost-to-income ratio dropping to 46.6%. Return on equity improved dramatically to 11.5%, and active leverage excluding client deposits rose to 4.9 times.
Goldman Sachs views increased offshore capital deployment as a critical catalyst for brokers to enhance both leverage and profitability. Accordingly, the firm raised its 2026-2028E revenue and net profit forecasts by an average of 10% and 12%, respectively. The A-share target price was increased to RMB 32.09 based on 14 times 2027E P/E, maintaining a Buy rating. The H-share target price was raised to HKD 19.99 based on 8 times 2027E P/E, with a Neutral rating sustained. Risks include weaker capital markets, declining AUM, fee compression, and an expanding cost-to-income ratio.