The first-half results were dragged back by the epidemic: Guotai Junan's international income fell 22.58 per cent year-on-year to HK $1.798 billion, net profit attributable to shareholders fell 5.53 per cent to HK $605 million, and annualised ROE was 9.4 per cent, up 1.3 percentage points from 2019. Earnings per share were HK6.77 cents, with an interim dividend of HK3.4 cents per share, with a dividend yield of 54%. The market volatility caused by the epidemic and the global decline in interest rates have all recorded a retrogression from corporate financing, interest rates on bills on financial products and income from market-making and investment, dragging down the overall decline on the income side. In contrast, thanks to a combination of impairment provisions, staff costs and financing costs, total group costs fell 31 per cent year-on-year, tightening the decline on the profit side. The company's income structure remains balanced, with 34% of fee and commission income, 37% of interest income and 29% of investment income.

Securities brokerage commissions are growing rapidly, and the scale of custodian assets continues to expand: the group's brokerage business recorded income of HK $276 million in the first half of the year, down 5% from the same period last year, mainly due to a sharp decline in the number of clients participating in placing activities in the Hong Kong stock market. However, brokerage commission income related to securities trading still recorded HK $231 million, an increase of 21% over the same period last year. At the same time, the Group rose seven places in the Hong Kong Stock Exchange, and its market share continued to grow. Thanks to the smooth development of the wealth management business, the assets under custody of the company's wealth management clients reached HK $22.2 billion as of June 2020, an increase of HK $3.2 billion over the end of 2019.

The loan and financing balance rebounded, and the investment banking business will rebound in the second half of the year: thanks to the development of the wealth management business, the newly increased net worth customers effectively led the financing balance to HK $14.987 billion, up 28 per cent from the end of 2019. Group loan and financing revenue rose nearly 30 per cent after excluding term loans due at the end of 2019. Group underwriting revenue fell 37 per cent to HK $205 million in the first half from a year earlier. In the second half of the year, the company has played an important role in a number of large-scale projects such as Financial Street property, Si Moore and China Petroleum & Chemical Corp pipe network restructuring, and investment banking revenue is expected to rebound in the second half of the year.

Rights issue to enhance the overall strength of the group, raise the target price to HK $1.35, buy rating: after the completion of the rights issue financing of HK $2.78 billion in March, the company has expanded its assets of about HK $28 billion, effectively sufficient capital strength of the group, in the epidemic and market fluctuations to enhance the group's ability to resist risks. We forecast revenue of HK $3.63 billion / HK $3.98 billion and net profit of HK $1.09 billion / HK $1.33 billion in 2021, raising the company's target price for the next 12 months to HK $1.35, corresponding to 0.94 times Pamp B in 2020, maintaining the buy rating.

Risk factors: the macro environment continues to deteriorate and the market turnover falls short of expectations.