HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China International Capital Corporation / Equity Bottom-Up

<ul>
<li>China's securities industry is under a wave of consolidation. <a href="https://www.smartkarma.com/entities/china-international-capital-corporation-ltd" target="_blank" data-smartkarma-citation="entities:1071:1" rel="noopener">China International Capital Corporation (3908 HK)</a> is interesting given its leadership in the investment banking business.</li>
<li>A combination with <a href="https://www.smartkarma.com/entities/china-galaxy-securities-co-h" target="_blank" data-smartkarma-citation="entities:165:1" rel="noopener">China Galaxy Securities (H) (6881 HK)</a> may bring synergy, given their different focuses. This will create the 3rd largest securities house in China. </li>
<li>Even without a merger, CICC also looks attractive with the US interest rate trending down. It is best set to gain upon the revival of the Hong Kong IPO market. </li>
</ul>


China's securities industry is under a wave of consolidation. China International Capital Corporation (3908 HK) is interesting given its leadership in the investment banking business.
A combination with China Galaxy Securities (H) (6881 HK) may bring synergy, given their different focuses. This will create the 3rd largest securities house in China. 
Even without a merger, CICC also looks attractive with the US interest rate trending down. It is best set to gain upon the revival of the Hong Kong IPO market. 


<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-international-capital-corporation-ltd" target="_blank" data-smartkarma-citation="entities:1071:1" rel="noopener">China International Capital Corporation (3908 HK)</a>'s 2H24 net profit surged 33.6% in 2H24, reversing the downtrend in 1H24. It has benefited from lower staff and other operating costs. </li>
<li>Better 1Q25 market turnover and activities, more IPOs and placements and improved cost dynamics imply that the consensus forecasts are too conservative.</li>
<li>Its 0.55x P/B cannot adequately reflect better profitability. Despite the denial, CICC's potential merger with <a href="https://www.smartkarma.com/entities/china-galaxy-securities-co-h" target="_blank" data-smartkarma-citation="entities:165:1" rel="noopener">China Galaxy Securities (H) (6881 HK)</a> cannot be completely ruled out.</li>
</ul>



China International Capital Corporation (3908 HK)'s 2H24 net profit surged 33.6% in 2H24, reversing the downtrend in 1H24. It has benefited from lower staff and other operating costs. 
Better 1Q25 market turnover and activities, more IPOs and placements and improved cost dynamics imply that the consensus forecasts are too conservative.
Its 0.55x P/B cannot adequately reflect better profitability. Despite the denial, CICC's potential merger with China Galaxy Securities (H) (6881 HK) cannot be completely ruled out.


CICC (3908 HK): Underestimated by the Market

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

China International Capital Corporation / Event-Driven

<ul>
<li>Reportedly, <a href="https://www.smartkarma.com/entities/china-international-capital-corporation-ltd" target="_blank" data-smartkarma-citation="entities:1071:1" rel="noopener">China International Capital Corporation (3908 HK)</a> and <a href="https://www.smartkarma.com/entities/china-galaxy-securities-co-h" target="_blank" data-smartkarma-citation="entities:165:1" rel="noopener">China Galaxy Securities (6881 HK)</a>, two of China's leading state-backed brokerages, intend to merge via a share swap, forming China's third-largest broker.</li>
<li>This report/rumour arrives shortly after the successful merger of <a href="https://www.smartkarma.com/entities/guotai-junan-securities-co-ltd-5dfaf2c5-76d3-4f34-a77d-118787fd7091" target="_blank" data-smartkarma-citation="entities:23752:1" rel="noopener">Guotai Junan Securities (2611 HK)</a> (GJS) and <a href="https://www.smartkarma.com/entities/haitong-securities-co-ltd-h" target="_blank" data-smartkarma-citation="entities:5665:1" rel="noopener">Haitong Securities (6837 HK)</a>. </li>
<li>As with GJS/Haitong, expect a Merger by Absorption structure, and that Galaxy (or CICC?) issue new A and H shares to the target. I'd be picking up CICC shares here. </li>
</ul>


Reportedly, China International Capital Corporation (3908 HK) and China Galaxy Securities (6881 HK), two of China's leading state-backed brokerages, intend to merge via a share swap, forming China's third-largest broker.
This report/rumour arrives shortly after the successful merger of Guotai Junan Securities (2611 HK) (GJS) and Haitong Securities (6837 HK). 
As with GJS/Haitong, expect a Merger by Absorption structure, and that Galaxy (or CICC?) issue new A and H shares to the target. I'd be picking up CICC shares here. 


CICC (3908 HK) & China Galaxy (6881 HK): The Next Mega Brokerage Merger

Travis Lundy

<ul>
<li>Huge volumes continue to be traded on the mainland share markets. SOUTHBOUND volumes bounced, and net buying was both large and broad-based.</li>
<li>Stocks in HK and mainland markets fell heavily with HK's main indices down 6-7% and China's blue chip indices down 3.3-3.6% (CSI 500 - 4.8%). </li>
<li>Within H/A Pairs, after outperforming the HK/mainland spread for weeks, spreads got shellacked. Worst week in a long time (-3.7%), perhaps on the back of "disappointing" lack of stimulus measures.</li>
</ul>


Huge volumes continue to be traded on the mainland share markets. SOUTHBOUND volumes bounced, and net buying was both large and broad-based.
Stocks in HK and mainland markets fell heavily with HK's main indices down 6-7% and China's blue chip indices down 3.3-3.6% (CSI 500 - 4.8%). 
Within H/A Pairs, after outperforming the HK/mainland spread for weeks, spreads got shellacked. Worst week in a long time (-3.7%), perhaps on the back of "disappointing" lack of stimulus measures.


A/H Premium Tracker (To 15 Nov 2024): AH Premia Rise Sharply; Hs Shellacked Vs As In Most Sectors

Shanghai Electric Group Company / Event-Driven

<ul>
<li>AH spreads are basically flat on the shortened week. AH premia rose in Pharma and Tech, fell in Industrials, Finance, and Banks. </li>
<li>All eyes will be on what happens in Geneva. I personally don't expect much. </li>
<li>The data tables below update on a daily basis in the <a href="https://www.smartkarma.com/tools" target="_blank" rel="noopener">Tools</a> section of Smartkarma. The <a href="https://www.smartkarma.com/tools/quiddity/south-flow-monitor" target="_blank" rel="noopener">SOUTHBOUND Flow Monitor</a> and <a href="https://www.smartkarma.com/tools/quiddity/ah-shares-monitor" target="_blank" rel="noopener">AH Monitor</a> are both there free for SK readers.</li>
</ul>


AH spreads are basically flat on the shortened week. AH premia rose in Pharma and Tech, fell in Industrials, Finance, and Banks. 
All eyes will be on what happens in Geneva. I personally don't expect much. 
The data tables below update on a daily basis in the Tools section of Smartkarma. The SOUTHBOUND Flow Monitor and AH Monitor are both there free for SK readers.


A/H Premium Tracker (To 9 May 2025):  AH Premia Fall Small; Spread Torsion Provides Continued Alpha

China

China International Capital Corporation Ltd. (CICC) operates as an international investment bank. The Company provides financial services, including investment banking, capital markets, securities sales and trading, fixed income, asset management, and private equity. China International Capital also offers individual wealth management and research services.

China International Capital Corporation (3908 HK)

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China International Capital Corporation (3908 HK)

CICC (3908 HK): M&A Possibility

While both CICC and CGS have denied there is a discussion on the merger and said that there is no information that needs to be disclosed, we still...

Osbert Tang, CFA

CICC (3908 HK): Underestimated by the Market

CICC saw a 33.6% surge in 2H24 net profit, benefiting from lower costs. Market activities suggest the consensus is too conservative, and a...

Osbert Tang, CFA

CICC (3908 HK) & China Galaxy (6881 HK): The Next Mega Brokerage Merger

The $64k question is: who will take over who? I'd be buying into CICC, as the preferred target. It has steadily underperformed Galaxy for years....

David Blennerhassett

A/H Premium Tracker (To 15 Nov 2024): AH Premia Rise Sharply; Hs Shellacked Vs As In Most Sectors

H/A Pairs got hurt badly this week - on average liquid Hs underperformed their As by 3.7% - as HK and China markets fell sharply after stimulus was...

Travis Lundy

A/H Premium Tracker (To 9 May 2025): AH Premia Fall Small; Spread Torsion Provides Continued Alpha

AH Premia flat on the week. Volumes are low. All eyes are on Geneva this weekend and I have no view other than to say nothing gets solved in a...

Travis Lundy

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