Goldman Sachs maintains Buy on CICC H-shares, believing M&A transformation and international expansion can lift ROE

Overview

This report focuses on China International Capital Corp. (3908.HK)'s operating outlook after its 2025 results, M&A progress, international business, and valuation updates. Goldman Sachs believes that although 4Q25 brokerage commissions and investment income were affected by market volatility, investment banking remained strong thanks to a solid IPO pipeline, while meaningful cost reductions supported profit growth. The core view is that M&A-driven capital replenishment, client-resource synergies, and international business expansion may open up room for further ROE improvement at CICC.

Core views

First, the M&A transaction is the key variable for ROE improvement: the deal is expected to ease two major bottlenecks, namely a relatively small capital base and insufficient retail client and branch scale, and may begin to show synergies by the end of 2026. Second, investment banking and capital markets businesses have room to rebound: management expects the number of A-share and Hong Kong IPOs, as well as fundraising scale, in 2026 to increase versus 2025. Third, international business is a growth lever: geopolitical changes are driving global capital diversification, Hong Kong Prime Brokerage grew by more than 50%, and overseas fixed-income allocation benefits from lower overseas interest rates. Fourth, forecast revisions reflect near-term caution: Goldman Sachs cuts average 2026-2028 revenue and profit forecasts by 6% and 5%, respectively, but still maintains a Buy rating on the H-shares.

Analysis framework

The report combines earnings review, management discussions, forecast revisions, and relative valuation. It first analyzes 2025 revenue, profit, costs, leverage, and business-line performance, then assesses the potential impact of the M&A on capital, clients, branches, and ROE. It subsequently incorporates 4Q25 results and management guidance into 2026-2028 earnings forecasts, and updates A-share and H-share target prices using a 12-month forward P/E valuation method.

Methodology notes

• Valuation method12-month forward P/E

  Use 2027E earnings as the valuation base, with an 18x target P/E for A shares and an 11x target P/E for H shares.

  Goldman Sachs rolled the valuation base forward to 2027E and, with the target P/E multiples unchanged, raised the CICC-A target price to RMB 42.26 and the CICC-H target price to HK$28.15.

• Goldman Sachs stock factor frameworkGS Factor Profile

  Assess stocks relative to the market and peers across growth, financial returns, valuation multiples, and composite factors.

  For financial stocks, growth mainly refers to EPS and sales growth, financial returns mainly refer to ROE, valuation multiples mainly refer to P/E, P/B, and dividend-related metrics, and the composite factor is a combination of growth, financial returns, and low valuation.

• M&A probability frameworkM&A Rank

  Goldman Sachs rates the probability of a company becoming an acquisition target on a scale of 1 to 3, where 3 indicates a low probability.

  The report shows that CICC's M&A Rank is 3, which under Goldman Sachs' definition corresponds to a 0%-15% low acquisition probability and is typically not included in the target price.

Asset mapping & comparison

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

• 3908.HK

  Core coverage name; CICC-H is the report's main H-share investment recommendation.

  Strengths

  Buy rating, target price HK$28.15; post-M&A improvements in capital and client resources, high-double-digit profit growth in international business, and ample investment banking pipeline.

  Weaknesses

  4Q25 brokerage commissions and investment income were affected by market volatility; 2026-2028 revenue and profit forecasts were cut.

  Comparison

  Compared with CICC-A's Neutral rating, CICC-H receives a Buy rating; its 2027E target P/E is 11x, lower than A shares' 18x, but with higher upside.

  Risks

  China capital markets underperform expectations, OTC derivatives losses, declining AUM and fee rates, and a higher-than-expected cost-to-income ratio.

• 601995.SS

  The company's A share, used for valuation and rating comparison.

  Strengths

  Target price of RMB 42.26, implying about 30% upside from the current price; benefits from investment banking, brokerage fee improvement, and cost savings.

  Weaknesses

  Rating is Neutral, valuation multiple is higher than the H-share, and earnings forecasts were also cut.

  Comparison

  A shares use an 18x 2027E P/E target multiple, while H shares use 11x; the H-share rating is more positive.

  Risks

  Capital market recovery falls short of expectations, OTC derivatives losses, AUM and fee-rate declines, and a rising cost-to-income ratio.

Key data

• 2025 revenueRMB 284.8 billionUp 34% YoY and 5% below Goldman Sachs' forecast.
• 2025 net profitRMB 97.9 billionUp 73% YoY and 1% below Goldman Sachs' forecast.
• CICC-H target priceHK$28.15Based on 11x 2027E P/E, versus a previous HK$27.59; rating is Buy.
• CICC-H current price and upsideHK$17.17; 63.9%From the valuation summary on the front page of the report.
• CICC-A target priceRMB 42.26Based on 18x 2027E P/E, versus a previous RMB 41.42; rating is Neutral.
• Post-M&A capital impactParent-company net capital is expected to increase by about 100%Management said the transaction would also lift the client base and branch network by more than 50%.
• 2026-2028 forecast revisionsRevenue down 6%, profit down 5%Average revision, reflecting 4Q results and management guidance.
• 2026E net profitRMB 104.37 billionNew forecast, cut by 6% versus the old forecast.
• 2027E net profitRMB 113.33 billionNew forecast, cut by 5% versus the old forecast.
• 2025 leverage5.3xManagement disclosed that leverage rebounded from 5.0x at the end of 2024 to 5.3x at the end of 2025.

Impact & implications

For 3908.HK, the investment implication is moderately positive: the near-term cut to earnings forecasts shows that market volatility and investment income still face pressure, but the M&A-driven capital expansion, stronger client and channel base, international business growth, and cost reductions provide a stronger narrative for medium-term ROE improvement. If the Hong Kong and A-share IPO markets recover and overseas business continues to grow at a high double-digit rate, the H-share's low valuation and greater target-price upside could become more attractive. Conversely, if capital markets recover more weakly than expected or the cost-to-income ratio rises, target-price realization will come under pressure.

Risks

• China capital market performance is weaker than expected, weighing on brokerage, investment banking, and investment income.
• OTC derivatives business posts losses.
• Assets under management or fee rates decline, hurting fee income.
• Cost-to-income ratio is higher than expected, undermining ROE improvement.
• M&A synergies materialize more slowly than expected, or capital efficiency falls short of management targets.
• Changes in regulatory policy or IPO rules affect the pace of investment banking business.

What to watch

• Progress of the second board meeting on the M&A transaction and subsequent approvals.
• Whether measurable M&A synergies emerge by the end of 2026.
• Hong Kong and A-share IPO counts, fundraising scale, and progress on CICC-sponsored projects.
• International business revenue and profit growth, especially in Hong Kong Prime Brokerage and overseas fixed-income allocation.
• Leverage, capital efficiency, and the path to ROE improvement.
• Cost trends, investment income volatility, and changes in the cost-to-income ratio.