Morgan Stanley has released a research report stating that the share swap merger of CICC (03908) with Dongxing Securities and Xinda Securities was completed on October 26, with newly issued free float shares becoming tradable from October 29. The company has declared its first interim dividend of RMB 0.26 per share, implying a payout ratio increase to 25%, in line with the bank's fundamental expectations. The bank maintains its Overweight rating on CICC with a target price of HK$32.8.
The bank expects that as merger integration progresses, CICC's payout ratio will gradually rise to above 30% in the future, and achieve a 13% growth in dividend per share in the first half of 2026. The bank notes that a higher payout ratio will help offset the earnings per share dilution effect caused by the merger.
The report points out that the bank holds a positive view on the synergy effects after the merger, expecting further potential to be unlocked within the next 12 months. The combined company's net capital is expected to double, which would benefit capital-intensive businesses such as equity trading, derivatives, and prime brokerage services. Previously, CICC had announced an injection of RMB 4.2 billion into its Hong Kong subsidiary. Management stated that as part of the merger, the company is seeking to increase high-margin loan balances and net interest income, depending on client demand. The number of retail clients is expected to increase by approximately 50%, and branch coverage is expected to expand by more than 80%.
Management also noted that if the wealth management business efficiency of Dongxing Securities and Xinda Securities can be elevated to a level comparable to that of CICC after the merger, it could bring potential revenue of RMB 1.5 billion to 2 billion. Wealth management integration work has been underway for several months now.
On the risk side, the report identifies slower-than-expected macroeconomic recovery affecting stock market performance and investor risk appetite, as well as cross-border business being dragged down by offshore market volatility. Upside risks include faster-than-expected macroeconomic recovery, easing geopolitical risks, and stronger-than-expected IPO and follow-on financing activities.
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