Citic Securities 3Q11 result

Citic Securities 3Q11 net profit came in at Rmb360mn, a sharp decline of 78% QoQ. The shortfall of result was mainly due to losses of Rmb712mn from the proprietary trading business which is the first time since 2006, and about Rmb2.37bn MTM loss through equity during 3Q11. With the investments losses during 3Q11, CS’ book value declined 3% qoq.

Total investments climbed to about 71.2% of total equity in 3Q (from 68.8% in 2Q) and equity exposure of the prop trading book also increased to 60% in 1H11 (from 7% in 2008). More exposure in “buy-side” business (i.e. prop trading and private equity investment) results in the earnings volatility of CS.

I regard CS as a call option, without the time value, of China A share market. Current bargain price provides a opportunity.