CICC has released a research report stating that considering CITIC FAMC's (02799) equity business revenue growth and declining liability costs, the firm has raised its 2025/2026 earnings forecasts by 16%/20% to RMB 11.5 billion/RMB 11.4 billion respectively. Due to improving market risk appetite and the company's inclusion in the MSCI China Index which is expected to attract incremental funds, CICC has raised its target price by 46% to HK$1.21, corresponding to 1.85x 2025e P/B with 0% upside potential, maintaining a neutral rating. The company currently trades at 1.85x 2025E P/B.

CICC's main viewpoints are as follows:

**Preliminary Results Show 1H25 Net Profit Growth of 12.5%-16.3%**

CITIC FAMC released an earnings preview indicating that 1H25 net profit attributable to shareholders is expected to be approximately RMB 6.0-6.2 billion, representing year-over-year growth of approximately 12.5%-16.3%. Excluding the impact of the financial leasing company's deconsolidation, the growth would be approximately 23.9%-28.2%. The company plans to fully achieve its "three-year significant quality and efficiency improvement" strategic goals by the end of 2025, enhancing operational quality and efficiency, while advancing toward its "five-year industry benchmark" target for 2026-27. The company expects profit growth to come from increased revenue from equity business and other sources, as well as decreased financing costs year-over-year.

**1H25 Increased Holdings in Bank of China and China Everbright Bank Under Equity Method**

The company stated that in 1H25, it continued to increase investment in its core business, with significant growth in main business revenue including distressed asset resolution and equity business, while asset returns steadily improved. In the first half of 2025, the company increased its holdings of Bank of China H-shares by 4.57 billion shares, and from January 20 to July 22, increased holdings of China Everbright Bank A-shares by 260 million shares and H-shares by 280 million shares. CICC estimates this could result in one-time investment gains of RMB 17.9-20.6 billion (compared to -RMB 0.1 billion in 1H24).

Compared to the company's RMB 50.3 billion investment plan announced in November 2024, the plan to increase holdings in Bank of China by no more than 5.9 billion shares has been 78% completed, while the plan to increase holdings in China Everbright Bank by no more than RMB 4 billion has been 48% completed. CICC continues to monitor the investment progress of the separately established single-service trust and new equity method investment trends.

**Key Operational Highlights:**

1) **Financing Costs Declined Year-over-Year**: The company's financing capabilities continued to strengthen in 1H25, with continuous innovation in financing instruments and decreased financing costs year-over-year. The company continues to optimize its liability structure, with CICC estimating 2H24 financing costs at 3.63%, down 20bp year-over-year and 17bp compared to 1H24. At the end of July, the company issued RMB 10.01 billion in Yunfan Phase 1 Entity Empowerment Asset-Backed Securities, with six-month issuance rates of 1.74% and one-year rates of 1.79%, significantly lower than 2H24 liability cost levels.

2) **Increased Impairment Provisions to Strengthen Reserve Base**: The company disclosed that in 1H25, it made asset impairment provisions and unrealized fair value change losses on non-performing debt assets and other major unlisted assets of approximately RMB 21.8 billion, continuously enhancing future risk resilience. As of the end of 2024, the provision coverage ratio for acquired and restructured non-performing debt assets was 54%, for AC debt instruments was 56%, and for FVOCI debt instruments was 156%.

3) **Inclusion in MSCI China Index After August 26 Close**: The company has been newly included as a constituent stock in the MSCI China Index, with adjustments to be implemented after August 26. CICC's strategy team estimates potential passive fund inflows of US$110 million.

**Board Authorization for Refinancing Plan**

On May 28, the company's shareholders' meeting approved general authorization for the board to issue additional shares, allowing decisions to issue, allot, or deal with domestic and/or H-shares separately or simultaneously, with quantities not exceeding 20% of the total issued domestic shares and H-shares respectively. The authorization is valid for 12 months after the 2024 shareholders' meeting or until the end of the 2025 shareholders' meeting.

**Risk Warnings**: Equity method investment returns below expectations; impairment provisions higher than expected; refinancing diluting existing shareholders' equity.