Strong rebound in 1Q26 trading and fund sales, but fee pressure still supports the Sell rating

Overview

This report is Goldman Sachs' review of East Money Information Co.'s 1Q26 results. The company's retail trading, margin financing and securities lending, and fund sales revenue rebounded significantly in the first quarter, with both core revenue and net profit exceeding Goldman Sachs expectations. However, Goldman Sachs believes the quality of the fundamental improvement remains constrained: fund distribution income was driven more by higher market activity rather than better fee rates or improved active fund AUM quality; meanwhile, ETF expansion and fund fee-cut policies continue to suppress fee rates. Therefore, Goldman Sachs maintains its Sell rating even after modestly raising earnings forecasts.

Core views

The core view is that strong short-term performance does not change the medium-term competitive pressures. Industry ADTV rose sharply year on year and quarter on quarter in 1Q26, boosting brokerage, margin financing and securities lending, and fund sales revenue; however, East Money's competitive position in active fund distribution is weakening, its market share in equity fund distribution AUM continues to decline, and fund fee rates remain on a downward trend. Goldman Sachs believes these factors will limit revenue quality, valuation upside, and the sustainability of future profit growth, and therefore maintains its Sell rating.

Analysis framework

The report analyzes the company from several dimensions, including quarterly earnings breakdown, revenue sources, deviations versus Goldman Sachs expectations, fund sales fee rates and AUM structure, valuation multiples, and target price methodology. Goldman Sachs compares actual 1Q26 revenue, profit, and key ratios with 1Q25, 4Q25, and GSe, and combines this with AMAC fund distribution data to assess the source and quality of growth in fund distribution income.

Methodology notes

• Valuation methods2027E 12-month forward P/E

  The target price is based on 20x 2027E 12-month forward P/E

  Goldman Sachs keeps the 2027E P/E multiple unchanged at 20x and derives a 12-month target price of Rmb17.09 after incorporating 1Q26 results.

• Factor profileGS Factor Profile

  Comparison of growth, financial returns, valuation multiples, and composite factors

  This framework compares the company with Goldman Sachs-covered stocks and industry peers, using sales, EBITDA, and EPS growth; ROE, ROCE, and CROCI; as well as metrics such as P/E, P/B, and dividend yield to calculate percentiles.

• M&A probabilityM&A Rank

  M&A Rank 3

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

Asset mapping & comparison

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

• 300059.SZ

  Covered stock in the report

  Strengths

  Retail trading-related income rebounded significantly in 1Q26, with brokerage and margin financing and securities lending revenue supported by higher industry ADTV; both net profit and core revenue exceeded Goldman Sachs expectations.

  Weaknesses

  Fund distribution fee rates continue to decline, the competitive position in active fund distribution is weakening, and market share in equity fund distribution AUM continues to fall.

  Comparison

  The report compares 300059.SZ with Asia ex. Japan covered stocks and peers in China Brokers & AM through the GS Factor Profile; the rating is also positioned relative to the coverage universe including CITIC Securities, CICC, Futu, GF Securities, Hundsun, and UP Fintech.

  Risks

  Further improvement in trading volume, higher fund distribution fee rates, or increased investment income could present upside risks.

• Shanghai-Shenzhen 300

  Relative performance benchmark

  Strengths

  Used to measure the stock price performance of 300059.SZ relative to the market.

  Weaknesses

  The report shows that 300059.SZ underperformed the Shanghai-Shenzhen 300 by 16.6%, 25.7%, and 23.7% over the past 3 months, 6 months, and 12 months, respectively.

  Comparison

  The absolute return of 300059.SZ was -15.5% over the past 3 months, -23.9% over 6 months, and -3.8% over 12 months.

  Risks

  If market risk appetite or broker sector valuations recover, the stock's relative performance could deviate from the report's assumptions.

Key data

• RatingSellRated Sell since November 29, 2022.
• 12-month target priceRmb17.09Based on an unchanged 2027E 20x P/E.
• Current priceRmb19.70Price shown on the front page of the report.
• Implied downside13.2%Downside of the target price relative to the current price.
• 1Q26 core revenueabout Rmb5.0bnExcluding other income; 24% above Goldman Sachs expectations and up about 12% year on year.
• 1Q26 net profitabout Rmb3.7bn22% above Goldman Sachs expectations and up about 25% year on year.
• 1Q26 brokerage revenueRmb2.9bnUp 46% year on year and 17% quarter on quarter.
• 1Q26 margin financing and securities lending revenueRmb1.1bnUp 54% year on year and 7% quarter on quarter.
• 1Q26 fund distribution revenueRmb1.1bnUp 31% year on year and 7% quarter on quarter, but growth quality is pressured by fee rates and AUM structure.
• Market capitalizationRmb311.3bn / $45.6bnListed in the report's Key Data section.
• 3-month ADTVRmb5.0bn / $730.6mnListed in the report's Key Data section.
• 2026E revenue forecastRmb21,798.4mnNew forecast in Goldman Sachs' forecast table.
• 2026E net profit forecastRmb14,185.9mnNew forecast in Goldman Sachs' forecast table.
• 2026E EPSRmb0.90New forecast in Goldman Sachs' forecast table.

Impact & implications

From an investment perspective, the report conveys coexistence between short-term earnings elasticity and medium-term business model pressure. Active market turnover can lift brokerage, margin financing and securities lending, and fund sales revenue, but if fund distribution fee rates continue to be depressed by ETF expansion and policy-driven fee cuts, and if market share in active fund distribution keeps falling, East Money's room for high-quality revenue growth and valuation rerating will remain limited. Goldman Sachs modestly raised forecasts but maintained a Sell rating, indicating that it is more focused on deterioration in revenue mix and competitive position than on a single quarter's earnings beat.

Risks

• Further improvement in trading volume could bring upside to revenue and earnings.
• Fund distribution fee rates above expectations could ease downward pressure on fee rates.
• Higher investment income could boost other income and profit performance.
• ETF expansion and fund fee-cut policies may continue to dilute fund sales fee rates.
• A continued decline in active fund distribution AUM market share may weaken East Money's long-term competitiveness.

What to watch

• Whether industry ADTV can remain at a high level and whether its boost to brokerage and margin financing and securities lending revenue is sustainable.
• Changes in East Money's equity fund distribution AUM market share as disclosed by AMAC.
• Trends in non-money-market fund sales volume, front-end fee rates, and back-end fee rates.
• The impact of ETF scale expansion and fund fee-cut policies on distribution revenue rates.
• Whether 2026E-2028E revenue, net profit, and EPS forecasts continue to be revised upward or downward.
• Volatility in investment income and its contribution to other income.