East Money's second-quarter earnings were boosted by market activity, but monetization pressure on its core businesses persists

Overview

The report reviews East Money's 2Q26 results and distinguishes the cyclical uplift from greater market activity from longer-term changes in the monetization capabilities of its core businesses. Although revenue, profit, and operating efficiency all exceeded expectations, Goldman Sachs believes the main drivers were higher trading and fund sales volumes rather than improved fee rates or pricing power, and therefore maintains its Sell rating.

Core views

East Money's 2Q26 total revenue was RMB6.5bn, up 49% YoY, while net profit was RMB4.3bn, up 52% YoY, exceeding Goldman Sachs' expectations by 17% and 20%, respectively. Core revenue excluding other revenue reached RMB5.5bn, up 62% YoY and 10% above Goldman Sachs' expectation. Goldman Sachs attributes the beat to more active capital markets, stronger fund sales volumes, a recovery in investment income, and operating leverage, although brokerage revenue remained slightly below expectations. Brokerage commission revenue increased 8% QoQ and 63% YoY to RMB3.1bn, but was 4% below Goldman Sachs' expectation. The report believes that the shortfall despite strong market turnover reflects continued pressure on trading commission rates and a rising share of low-fee ETF trading; higher market turnover only partially offset these effects. The securities trading commission rate edged down from 1.95bps in 2H25 to approximately 1.82bps in 1H26. Accordingly, future earnings will depend not only on market trading activity but also on whether East Money can stabilize its retail trading market share and commission rates. 2Q26 net interest income was RMB1.17bn, up 6% QoQ and 64% YoY and 6% above Goldman Sachs' expectation. Stronger market sentiment and higher leverage usage drove growth in margin financing and securities lending balances, but the net interest margin on margin financing and securities lending declined from 1.84% in 2H25 to 1.76% in 1H26, although it remained above 1.47% in 1H25. Goldman Sachs therefore believes earnings growth in this business is increasingly dependent on balance-sheet expansion rather than margin improvement. Online services revenue, primarily from fund distribution, increased 14% QoQ and 59% YoY to RMB1.22bn in 2Q26, 89% above Goldman Sachs' expectation and the largest positive surprise of the quarter. Strong market performance, improved investor risk appetite, and a recovery in equity fund sales boosted sales volumes, but the fund distribution fee rate declined further to 11.0bps in 1H26, below 11.4bps in 2H25 and 13.4bps in 1H25, and in line with Goldman Sachs' expectation. This indicates that incremental revenue was driven primarily by volume rather than improved unit monetization. The report believes mutual fund fee reforms and a rising share of low-fee ETFs will continue to constrain monetization. Given that the company's historical investment thesis has largely rested on its leading online fund distribution channel, the sustainability of its fund distribution market share and fee rates remains the most important long-term debate. Stronger capital markets can lift sales volumes in the short term, but its advantage in active fund sales may continue to narrow as fee rates decline. Other revenue, primarily investment income, increased 60% QoQ to RMB1.06bn in 2Q26, 73% above Goldman Sachs' expectation. The report attributes this to a stronger market environment and improved investment performance, while noting the weak base in 4Q25. Operating expenses were RMB1.44bn, up 9% QoQ and 33% YoY, broadly in line with expectations; the cost-to-income ratio declined to 22%, better than 23% in 1Q26, 25% in 2Q25, and Goldman Sachs' 26% estimate. As a result, annualized ROE rose to 17.8%, above Goldman Sachs' 14.8% estimate and 13.5% in 2Q25; total leverage increased from 4.2x in 2Q25 to 5.1x, indicating that the improvement in profitability was accompanied by higher leverage. After incorporating the 2Q26 results, Goldman Sachs raised its assumptions for fund sales volumes and operating leverage. Its 2026E, 2027E, and 2028E fund distribution revenue forecasts were increased by 30%, 20%, and 20%, respectively, while its distribution fee rate assumptions remained at approximately 10bps over the same period, indicating that the revisions were based entirely on higher volumes rather than improved pricing power. As a partial offset, Goldman Sachs lowered its brokerage commission forecasts for 2026E through 2028E by 3%, 5%, and 9%, respectively, to reflect pressure on retail trading monetization and market share; net interest income forecasts were reduced by 1%, 11%, and 12%, respectively, mainly due to narrower spreads on margin financing and securities lending. Revised revenue for 2026E through 2028E is RMB24,097.4mn, RMB21,451.8mn, and RMB20,947.0mn, respectively, versus previous forecasts of RMB23,285.2mn, RMB21,707.0mn, and RMB21,717.5mn; the corresponding revenue growth rates are 28%, -11%, and -2%. Net profit forecasts are RMB15,646.3mn, RMB13,457.7mn, and RMB13,064.3mn, respectively, corresponding to growth of 29%, -14%, and -3%. The new EPS forecasts for the same period are RMB0.99, RMB0.85, and RMB0.83, versus previous forecasts of RMB0.95, RMB0.87, and RMB0.87. Although near-term earnings forecasts were raised, the 2027E and 2028E forecasts were lowered, and the long-term view continues to depend on whether East Money can sustain its monetization advantage rather than simply achieve higher business volumes. Goldman Sachs maintains its Sell rating and lowers its 12-month target price from RMB17.42 to RMB17.01. The target price applies an unchanged 20x 2027E forward P/E multiple; relative to the current price of RMB18.91, it implies 10.0% downside. The report's central conclusion is that greater market activity can significantly boost short-term revenue and profit, but the lack of improvement in fund distribution fee rates means the structural pressures facing the company's core businesses remain largely unchanged.

Analysis framework

Goldman Sachs first compares each component of 2Q26 revenue, profit, and costs with the prior-year period, the previous quarter, and its own forecasts, and then analyzes the sources of the beat across brokerage commissions, margin financing and securities lending, fund distribution, investment income, and expenses. The report subsequently distinguishes business volume growth from changes in unit fee rates, uses this analysis to revise its segment forecasts for 2026E through 2028E, and applies a 20x 2027E forward P/E multiple to derive its 12-month target price.

Methodology notes

• Event-driven strategies and behavioral financeExpectation gap/expectation management

  Comparison of actual results with Goldman Sachs' forecasts

  By comparing actual revenue, net profit, and segment revenue with GSe, the report identifies the main positive and negative surprises for the quarter and revises its earnings forecasts accordingly.

• Industry/sector analysis frameworkVolume-price decomposition

  Decomposition of sales volumes and fee rates

  The report decomposes fund distribution and brokerage revenue into business volumes and unit fee rates, concluding that quarterly growth was driven by higher trading and fund sales volumes, while distribution fee rates and commission rates did not improve.

• Financial industry-specific metricsNet interest margin (NIM) analysis

  Analysis of the net interest margin on margin financing and securities lending

  The report compares the net interest margin on margin financing and securities lending in 1H25, 2H25, and 1H26, concluding that net interest income growth is increasingly dependent on the expansion of financing balances rather than wider spreads.

• Company fundamentals and financial frameworkOperating/financial leverage analysis

  Operating leverage and balance-sheet leverage

  The report combines changes in the cost-to-income ratio, ROE, and total leverage to explain how rapid revenue growth improves profit margins, while also noting the financing business's dependence on balance-sheet expansion.

• Valuation methodologyP/E and PEG valuation

  2027E forward P/E valuation

  Goldman Sachs calculates its 12-month target price of RMB17.01 using an unchanged 20x 2027E forward P/E multiple.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• East Money Information Co. (300059.SZ)

  Higher market turnover and fund sales volumes boost short-term revenue and profit, but declining fee rates in the core businesses constrain long-term monetization.

  Strengths

  A leading online fund distribution channel, strong business volume sensitivity when markets are active, and operating leverage from an improving cost-to-income ratio.

  Weaknesses

  Fund distribution fee rates, securities trading commission rates, and the net interest margin on margin financing and securities lending are all under pressure, making earnings growth increasingly dependent on trading volumes and balance-sheet expansion.

  Comparison

  The report's rating is determined relative to other companies within its brokerage and fintech coverage universe; it does not provide specific peer operating metric comparisons.

  Risks

  Further improvement in trading volumes, higher fund distribution fee rates, or increased investment income could all represent upside risks to the Sell thesis.

Key data

• 2Q26 total revenueRMB6.5bnUp 49% YoY and 17% above GSe
• 2Q26 net profitRMB4.3bnUp 52% YoY and 20% above GSe
• 2Q26 core revenueRMB5.5bnUp 62% YoY excluding other revenue and 10% above GSe
• 2Q26 brokerage commission revenueRMB3.1bnUp 8% QoQ and 63% YoY, but 4% below GSe
• 1H26 securities trading commission rateApproximately 1.82bpsDown from 1.95bps in 2H25
• 2Q26 net interest incomeRMB1.17bnUp 6% QoQ and 64% YoY, and 6% above GSe
• 1H26 net interest margin on margin financing and securities lending1.76%1.84% in 2H25 and 1.47% in 1H25
• 2Q26 fund distribution-related revenueRMB1.22bnUp 14% QoQ and 59% YoY, and 89% above GSe
• 1H26 fund distribution fee rate11.0bps11.4bps in 2H25 and 13.4bps in 1H25
• 2Q26 other revenueRMB1.06bnPrimarily investment income, up 60% QoQ and 73% above GSe
• 2Q26 cost-to-income ratio22%23% in 1Q26, 25% in 2Q25, and 26% GSe
• 2Q26 annualized ROE17.8%14.8% GSe and 13.5% in 2Q25
• 2Q26 total leverage5.1x4.2x in 2Q25
• 2026E-2028E net profit growth29%/-14%/-3%Goldman Sachs' revised forecasts
• 12-month target priceRMB17.01Previously RMB17.42, based on a 20x 2027E forward P/E multiple

Impact & implications

The report believes that more active capital markets can significantly improve East Money's short-term performance through higher trading volumes, fund sales volumes, and investment income, while also unlocking operating leverage. However, this does not alter the downward trend in unit monetization across fund distribution, retail brokerage, and margin financing and securities lending. Goldman Sachs therefore raises some near-term earnings forecasts but continues to focus its long-term assessment on the sustainability of market share, fee rates, and interest margins, while maintaining its Sell rating.

Risks

• Further improvement in trading volumes could cause revenue and earnings to exceed the report's forecasts.
• Higher fund distribution fee rates could improve the monetization capabilities of the core businesses.
• Continued growth in investment income could provide additional earnings upside.

What to watch

• Changes in fund distribution market share and fee rates.
• Retail trading market share and monetization capabilities.
• The sustainability of growth in margin financing and securities lending amid moderating net interest margins.
• Whether operating leverage and cost discipline can be sustained.
• Whether investment income can be maintained if market conditions normalize.