CXMT investment re-rating boosts China Merchants Securities - H shares

Overview

This report focuses on the reasons behind the recent share price strength of China Merchants Securities - H. The core view is that after CXMT updated its prospectus and disclosed strong 1Q26 operating trends, the market began to re-assess the value of China Merchants Securities' pre-IPO equity stake in CXMT. J.P. Morgan maintains an Overweight rating on China Merchants Securities - H under its company research framework and sets a Dec-26 target price of HK$17.20.

Core views

The report argues that the 6.5% rise in China Merchants Securities - H on May 19, which outperformed the 1.2% average gain for H-share brokerages, was mainly driven by a re-rating of investment value following the updated CXMT prospectus. CXMT is China's largest and most advanced integrated DRAM company, covering R&D, design, manufacturing and sales; by shipments and revenue it ranks first in China and fourth globally, and its global DRAM revenue share reportedly rose to 7.67% in 4Q25. Through a subsidiary, China Merchants Securities holds about 0.54% of CXMT's pre-IPO equity, so improving profitability and potential IPO valuation upside at CXMT could generate positive investment returns for China Merchants Securities. The report also remains constructive on China Merchants Securities' share gain in brokerage, growth in the public fund business, and support from elevated ADT and a low 1H25 base for 1H26 earnings.

Analysis framework

The report uses two analytical tracks: first, event-driven analysis that compares China Merchants Securities - H with the average H-share brokerage move and attributes the relative strength to the updated CXMT prospectus; second, valuation analysis that uses a FY26-28E dividend DDM and ROE-g/COE-g terminal value method for China Merchants Securities' target price, and evaluates the potential investment return from the CXMT stake under different valuation scenarios.

Methodology notes

• equity_valuationDDM

  Dividend discount model

  The report uses FY26-28E dividends and discounted terminal value to derive China Merchants Securities' current fair value, then compounds the time value to Dec-26 to arrive at the target price basis.

• terminal_valueROE-g/COE-g

  Terminal value estimate based on ROE, long-term growth and cost of equity

  The report calculates terminal value using the ROE-g/COE-g method, with key assumptions including a 1.80% risk-free rate, 8.0% equity risk premium, 1.2x beta and 4.5% long-term growth.

• investment_scenarioCXMT stake valuation scenario

  CXMT equity investment return scenario analysis

  The report sets up a simplified framework to assess potential investment returns based on CXMT's annualized 1Q26 net profit, implied valuation, China Merchants Securities' stake value and the stake's ratio to China Merchants Securities - H market capitalization.

Asset mapping & comparison

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

• China Merchants Securities Company Ltd - H (6099.HK)

  Core coverage name; the investment view is driven by the CXMT equity re-rating and brokerage business growth.

  Strengths

  Overweight rating; target price HK$17.20; increasing brokerage market share; benefiting from public fund business growth, high ADT and a low base; holds a 0.54% pre-IPO stake in CXMT.

  Weaknesses

  Brokerage commission rates remain under long-term pressure; the business is affected by the regulatory environment, market turnover activity and oversight of the asset management industry.

  Comparison

  Up 6.5% on May 19, outperforming the H-share brokerage average of +1.2%.

  Risks

  Government stabilization-fund related contributions and hedge restrictions, tighter regulation of domestic asset management, the long-term decline in commission rates driven by online and mobile platforms, and uncertainty from potential liberalization of brokerage fee structures.

• ChangXin Memory Technologies (CXMT)

  China Merchants Securities holds a 0.54% pre-IPO stake through a subsidiary, which is a catalyst for equity investment re-rating.

  Strengths

  China's largest and most advanced integrated DRAM company; covers R&D, design, manufacturing and sales; ranks No. 1 in China and No. 4 globally by shipments and revenue; 1Q26 net profit of RMB 33.0 billion.

  Weaknesses

  The report mainly analyzes CXMT through the updated prospectus and a scenario framework, without providing a full standalone valuation.

  Comparison

  Its global DRAM revenue share reportedly rose to 7.67% in 4Q25.

  Risks

  IPO valuation, the DRAM cycle, earnings sustainability and market risk may affect the magnitude of the re-rating of China Merchants Securities' stake value.

Key data

• China Merchants Securities - H gain on May 19+6.5%The average gain for H-share brokerages over the same period was +1.2%.
• China Merchants Securities' pre-IPO stake in CXMT0.54%Held through a subsidiary.
• CXMT 1Q26 net profitRMB 33.0 billionThe report compares this with FY25 net profit of RMB 7.1 billion, showing a significant improvement in operating trends.
• CXMT industry positionNo. 1 in China, No. 4 globallyBy shipments and revenue, CXMT is China's largest and most advanced integrated DRAM company.
• CXMT global DRAM revenue share7.67%The report says this share rose to 7.67% in 4Q25.
• Target priceHK$17.20Dec-26 target price, with target date through December 31, 2026.
• Current priceHK$14.78The report price date is May 19, 2026.
• Key valuation assumptionsRisk-free rate 1.80%, equity risk premium 8.0%, beta 1.2x, long-term growth rate 4.5%Used in the DDM and ROE-g/COE-g valuation frameworks.

Impact & implications

For China Merchants Securities - H, the CXMT investment re-rating provides a catalyst beyond traditional brokerage operations and may increase market attention on its asset value and earnings elasticity. If CXMT's profitability trend and IPO expectations continue to improve, the value of China Merchants Securities' 0.54% pre-IPO stake could become an important variable in share price re-rating; meanwhile, brokerage market share gains, public fund business growth and a high-ADT environment remain fundamental support.

Risks

• Downside risks include the impact of government stabilization-fund contributions and hedging restrictions.
• Rapid development in domestic asset management may face tighter regulation.
• The development of online and mobile industry platforms, more fragmented competition, and a potential liberalization of brokerage fee structures could keep commission rates under long-term pressure.
• If brokerage commissions are below expectations, new business revenue is weaker than expected, or ADT improves less than expected, the report's upside logic could be undermined.
• The investment return on CXMT depends on subsequent earnings sustainability, IPO valuation and market risk appetite for DRAM assets.

What to watch

• Further CXMT prospectus updates, IPO progress and valuation range.
• CXMT quarterly earnings trends, DRAM revenue share and changes in the industry cycle.
• Accounting recognition, valuation changes and exit path for China Merchants Securities' 0.54% pre-IPO stake in CXMT.
• China Merchants Securities' 1H26 earnings, especially whether the upside from high ADT and the low 1H25 base is realized.
• Brokerage market share, public fund business growth and regulatory changes in domestic asset management.
• Trading activity in the H-share brokerage sector, commission rate trends and regulatory policy.