Founder Securities released a research report stating that the capital market continues to thrive, and supply-side reform in the securities industry is accelerating. Currently, the improvement trend in broker fundamentals diverges from valuation performance, presenting opportunities for strategic positioning. The firm remains optimistic about the brokerage sector maintaining high year-on-year profit growth in 2025, with ample room for valuation re-rating given the mismatch between sector valuations and improving fundamentals.
From a PB valuation perspective, the sector's 2025 dynamic PB stands at 1.35x, at the 36th percentile over the past decade—well below historical highs. The report highlights that ongoing brokerage mergers could accelerate supply-side reform and drive sector-wide valuation recovery. Founder Securities forecasts a 51% YoY increase in 2025E net profit for the brokerage sector, with ROE rebounding to 8.8%, and recommends focusing on leading brokerages strengthening their competitive edge.
Key Event: On November 19, China International Capital Corporation (CICC), Cinda Securities, and Dongxing Securities announced plans for major asset restructuring, suspending trading from November 20. CICC proposes to merge with Cinda Securities and Dongxing Securities via share swaps, with the suspension expected to last no more than 25 trading days.
Founder Securities' Key Insights: 1. **Huijin-Licensed Brokerage Consolidation Begins**: The merger aims to integrate financial resources under Central Huijin, which holds stakes in multiple brokerages including CICC (40.1%), Cinda Securities (78.7% via China Cinda), and Dongxing Securities (45.0% via China Orient). The move aligns with building a world-class investment bank. The transaction remains subject to approvals.
2. **CICC’s Enhanced Competitiveness**: Post-merger, CICC’s net assets could rise to RMB 171.5 billion (4th in the industry), bolstering capital strength and business lines like asset management and brokerage. While short-term ROE may dilute, the merger addresses tight risk metrics (capital leverage ratio: 12.1%; net stable funding ratio: 139.0%) and expands growth potential.
3. **Business Synergies**: CICC’s weaker brokerage and asset management segments stand to gain from Cinda Securities’ regional strengths and Dongxing Securities’ fixed-income and investment banking expertise. Subsidiary licenses (e.g., mutual fund units) may also consolidate under regulatory "one-control" rules.
4. **Regional Expansion**: The merger enhances CICC’s footprint in Fujian and Liaoning provinces, where Cinda and Dongxing have concentrated branch networks.
5. **Industry Consolidation Trend**: Following the CSRC’s March 2024 guidelines to cultivate 2–3 globally competitive investment banks, strategic mergers among top brokers (e.g., Guotai Junan-Haitong Securities) are gaining momentum. CICC emerges as a frontrunner in this transformation.
Risks: Delays in merger execution; policy implementation hurdles; slower-than-expected shifts in household asset allocation.
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