Goldman Sachs has released a research report indicating that preliminary first-quarter 2026 results from CICC (03908) and CITIC SEC (06030) show revenue and profit significantly exceeding the firm's expectations. CICC is projected to report a net profit increase of approximately 65% to 90% year-on-year, surpassing the original forecast of 27% to 46%. CITIC SEC's net profit is expected to grow by 57% year-on-year, exceeding the forecast by 25%. While some investors are optimistic about Chinese brokerages due to a recovery in Hong Kong's IPO market, Goldman Sachs holds a different view. Within the financial sector, the firm continues to prefer Chinese bank stocks over brokerage stocks, based primarily on two factors: the sustainability of profit improvement and relative valuations.

The firm predicts that the average pre-provision operating profit (PPOP) growth for the mainland banks it covers will reach 8% in the first quarter of 2026, a significant rebound from the -3% recorded in the first quarter of 2025. Among these, the average PPOP growth for the four major state-owned banks is forecast at 6%, mainly benefiting from a narrower sequential decline in net interest margins. Additionally, their trading valuations remain attractive, with price-to-PPOP ratios of 4.8 times for A-shares and 4.0 times for H-shares, and price-to-book ratios of 0.7 times and 0.6 times, respectively. In contrast, the three brokerages—CICC, CITIC SEC, and GF SEC (01776)—have an average H-share price-to-earnings ratio of 12 times and a price-to-book ratio of 1 time, which are above their historical median levels. Goldman Sachs notes that capital deployment and leverage increases in the Hong Kong market still require further validation.

The firm forecasts an average PPOP growth of 8% and an average net profit growth of 6% for the mainland banks it covers. It also expects the performance of the four major state-owned banks to continue improving, projecting average PPOP and net profit growth of 6% and 5%, respectively. For other covered banks, average growth is forecast at 9% for PPOP and 6% for net profit. Among the four major banks, Goldman Sachs maintains a preference for CCB (00939) and BANK OF CHINA (03988) due to their stable and high-quality earnings growth. The firm is also closely monitoring the performance trends of ABC (01288), particularly following management's relatively optimistic guidance for the first quarter of 2026, as well as the progress of its capital replenishment and its impact on balance sheet strengthening.

The profit growth of CM BANK (03968) is a key focus for the firm. Goldman Sachs believes that, given CM BANK management's emphasis on a robust balance sheet, the likelihood of increased provisions is low. Consequently, its profit growth should theoretically outpace that of the large state-owned banks. The firm projects CM BANK's net profit growth at 8% for the first quarter of 2026 and 7% for the full year 2026, compared to an average growth of 3% for the four major banks.