Cathay Pacific Haitong: Maintaining CICC's (03908) “Gain” Rating Target Price of HK$27.20

The Zhitong Finance App learned that Cathay Pacific Haitong released a research report stating that it will maintain the target price of HK$27.20 for CICC (03908), corresponding to 1.2xPb in 2025. On December 17, CICC announced plans to exchange shares and absorb the merger of Dongxing Securities and Cinda Securities and will resume trading on December 18. Considering the synergy of CICC's current merger and acquisition, and the current gradual momentum of deep valuation adjustments in the brokerage sector, the “increase in holdings” rating was maintained. The bank believes that it can absorb and is expected to significantly improve its comprehensive strength. The synergy effect is expected to be mainly reflected in expanding the customer base and improving the efficiency of absorbing assets.

Cathay Pacific Haitong's main views are as follows:

CICC traded shares to absorb Dongxing Securities and Cinda Securities

Excluding mergers and acquisitions, the bank maintains a profit forecast and the overall share exchange plan is determined according to the pricing benchmark 20 trading days before. Dongxing Securities has a 26% premium, which does not involve supporting capital raising. According to the stock exchange plan, the A-share exchange price of CICC Securities was 36.91 yuan (corresponding to 25q3 static PB1.83x), the exchange price of Dongxing Securities was 16.14 yuan (26% premium over the average price of the previous 20 trading days, corresponding to PB1.76x), and the exchange price of Cinda Securities was 19.15 yuan (based on the average price of the previous 20 trading days, corresponding to PB3.05x). Looking at the shareholder structure, after the share exchange, Central Huijin will directly hold 24.44% of CICC's shares, 16.71% of China Cinda's shares, and 8.05% of China Oriental and its co-actors, all of which promise to lock in for 36 months. It is expected that AMC shareholders are expected to drive collaborative profits.

Absorption is expected to significantly enhance comprehensive strength. The synergy effect is expected to be mainly reflected in expanding the customer base and improving asset absorption efficiency

1) Based on 25Q3 data, CICC, Dongxing Securities, and Cinda Securities ranked 8th, 25th, and 26th respectively in the industry. It is expected to rise to 3rd to 4th place after integration, and the overall strength will increase significantly. Net revenue, net profit attributable to mother, total assets, and net assets after the merger ranked 3rd, 6th, 4th, and 4th in the industry, respectively;

2) Looking at business segments, it is expected to be fully strengthened. Among them, self-operating income is expected to rise to 3rd place, and capital utilization efficiency is expected to further improve after the merger and acquisition (CICC's leverage ratio 5.4x vs. Dongxing Securities 3.2x, Cinda Securities 3.8x); brokerage business is expected to improve the customer base and improve regional layout, especially in Fujian and Liaoning (34 of Dongxing Securities's 77 sales departments are located in Fujian, and 33 of Cinda Securities's 82 are located in Liaoning).

Catalysts: progress in mergers and acquisitions; advancement of supply-side reforms in the industry.