Sinolink Securities: Brokerage M&A Events Expected to Boost Industry Concentration and Catalyze Valuation Recovery

Stock News12-18 17:08

Sinolink Securities released a research report stating that on the evening of December 17, China International Capital Corporation (CICC) (601995.SH) announced a plan to acquire Dongxing Securities (601198.SH) and Cinda Securities (601059.SH) through a share swap, accelerating the consolidation process. This move is expected to add another internationally competitive investment bank to the industry while reinforcing the Matthew Effect in the sector.

Listed brokerages reported better-than-expected Q3 earnings, with full-year profit growth likely to remain strong. However, the sector's current PB valuation of 1.4x sits at the 36th percentile over the past decade, indicating a mismatch with performance. Brokerage M&A events are anticipated to enhance industry concentration and catalyze valuation recovery. Stock selection strategies include: (1) brokerages with strong fundamentals but undervalued relative to performance; (2) brokerages with high A-H share premium rates.

**Key Points of the Plan** 1. **Unchanged Controlling Shareholder**: The transaction will not alter CICC’s control structure, with Central Huijin remaining its controlling shareholder and ultimate beneficiary. 2. **Share Swap Pricing & Ratio**: - CICC’s swap price is set at RMB 36.91/share (adjusted for dividends), based on its 20-day average price of RMB 37.00/share. - Dongxing Securities’ swap price is RMB 16.14/share, reflecting a 26% premium over its 20-day average of RMB 12.81/share. - Cinda Securities’ swap price is RMB 19.15/share, matching its 20-day average. - Dissenting shareholders of Dongxing and Cinda may exercise cash exit options at RMB 13.13/share and RMB 17.79/share, respectively. - Swap ratios: 1 Dongxing share = 0.4373 CICC shares; 1 Cinda share = 0.5188 CICC shares. The implied PB multiples for Dongxing and Cinda are 1.76x and 3.05x, respectively.

**Growth Outlook** 1. **Enhanced Comprehensive Rankings**: Based on Q1-Q3 2025 data, the merged entity would rank 4th in total assets, 4th in net assets, and 6th in net profit (up from CICC’s current 6th/9th/10th), with CICC’s profit ranking rising by four spots. By business line, post-merger rankings for brokerage, investment banking, asset management, credit, and investment income would improve to 8th, 2nd, 6th, 41st, and 3rd, respectively. 2. **Geographic & Business Expansion**: The merger would expand CICC’s branch network from 245 to 436 outlets, leveraging complementary regional strengths—Cinda’s 40% presence in Liaoning, Dongxing’s 44% in Fujian, and CICC’s footprint in Guangdong, Jiangsu, and Sichuan. Retail client numbers are projected to surge from 9.72 million to over 14 million (pre-deduplication). 3. **Improved Capital Efficiency**: The combined entity’s operational leverage (5.42x for CICC vs. 3.20x/3.84x for Dongxing/Cinda) is expected to optimize capital deployment, facilitate steady balance sheet expansion, and bolster international operations.

**Risks**: 1) Delays in M&A progress; 2) Extreme equity market volatility; 3) Slower-than-expected macroeconomic recovery.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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