Shenwan Hongyuan Group Co., Ltd. released a research report stating that mergers and acquisitions (M&A) will remain one of the core investment themes throughout 2026. Year-to-date, the brokerage sector has significantly underperformed the broader market, presenting a compelling case for catch-up potential, under-allocation, and undervaluation. The firm highlighted three key investment opportunities: 1) Brokerages with wealth/asset management businesses poised to benefit from rising equity market attractiveness. 2) Targets likely to gain from industry consolidation, particularly under the "Huijin System" restructuring. 3) Firms with strong overseas business advantages.
Key developments: On November 19, China International Capital Corporation (CICC) announced a trading halt for a major asset restructuring plan involving share swaps to absorb Dongxing Securities and Cinda Securities, with the suspension expected to last up to 25 trading days.
**Reiterating M&A as a 2026 Investment Theme** Shenwan Hongyuan’s 2026 strategy identifies M&A as a mid-term priority, outlining four approaches: 1) Consolidation of brokerages under common ownership. 2) Resolving regulatory conflicts via "one participation, one control" structures. 3) Regional specialty brokers seeking scale. 4) State-owned capital integrating private brokers. The proposed CICC-Cinda-Dongxing merger aligns with the first approach, warranting continued attention to intra-group consolidation prospects.
**Precedent: Huijin-Led Restructuring Paves the Way** On February 14, 2025, China Cinda, China Orient, and Great Wall Asset announced share transfers to Central Huijin, CICC’s parent. This streamlined internal integration among Huijin-affiliated brokers (CICC, China Galaxy, Shenwan Hongyuan, CSC Financial, Everbright Securities, and Great Wall Guorui Securities).
**Post-Merger Scale and Profitability Boost** Based on 9M25 aggregated data, the combined entity would: - Rank 4th in total assets (¥1.01 trillion, up from 6th) and equity (¥171.5 billion, up from 9th). - Rise to 3rd in revenue (¥27.4 billion, surpassing Huatai Securities) and 6th in net profit (¥9.5 billion, up from 10th). - Improve brokerage income ranking (8th, up from 9th) and narrow the investment banking gap with CITIC Securities (¥2.9 billion vs. ¥7.5 billion pre-merger). - Maintain 6th in asset management revenue (¥1.3 billion) and climb to 3rd in proprietary trading (¥14.4 billion).
**Synergies in Special Assets and Regional Wealth Management** - **Cinda Securities**: Leverages parent China Cinda’s leadership in distressed assets, enhancing CICC’s capabilities in restructuring and special situations. - **Dongxing Securities**: Strengthens bond financing and integrates asset management with distressed assets, supported by parent China Orient. - **Regional expansion**: Dongxing’s Fujian footprint and Cinda’s Liaoning presence would complement CICC’s wealth management coverage.
**Risks**: Bond market volatility, delayed M&A progress, goodwill impairments, and sluggish trading volumes may pose challenges.
