HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China International Capital Corporation / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-international-capital-corporation-ltd" target="_blank" data-smartkarma-citation="entities:1071:1" rel="noopener">CICC (3908 HK)</a> announced details of its merger, and as <a href="https://www.smartkarma.com/entities/dongxing-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:25320:1" rel="noopener">Dongxing Securities (601198 CH)</a> is valued higher, FY26F EPS dilution will be 8.5% on a weighted average basis.</li>
<li>Its post-merger FY26 and FY27 PERs are higher than the sector average, but given its rise to the 3rd largest H-share securities company, the premium can be justified.</li>
<li>Larger H-share securities companies have edged up since 19-Nov, which bodes well for CICC. We envisage a muted share price reaction, but long-term investors can build a position.  </li>
</ul>



CICC (3908 HK) announced details of its merger, and as Dongxing Securities (601198 CH) is valued higher, FY26F EPS dilution will be 8.5% on a weighted average basis.
Its post-merger FY26 and FY27 PERs are higher than the sector average, but given its rise to the 3rd largest H-share securities company, the premium can be justified.
Larger H-share securities companies have edged up since 19-Nov, which bodes well for CICC. We envisage a muted share price reaction, but long-term investors can build a position.  


<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. 


Zhejiang Expressway Co H / Equity Bottom-Up

<ul>
<li>By way of its 54.79% ownership in <a href="https://www.smartkarma.com/entities/zheshang-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:29981:1" rel="noopener">Zheshang Securities (601878 CH)</a>, <a href="https://www.smartkarma.com/entities/zhejiang-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2178:1" rel="noopener">Zhejiang Expressway Co H (576 HK)</a> is an attractive indirect vehicle to access the mainland securities sector.  </li>
<li>The attributable market cap of Zheshang equals 90% of ZJE's market cap, implying that the toll road business is almost free. However, Zheshang only contributed 16% of ZJE's 1H24 profit.</li>
<li>ZJE trades on 6.7x FY24F PER, vs. 31.3x for Zheshang and 17.6x for H-share securities companies. A stable toll road business also minimises the risk for ZJE.</li>
</ul>


By way of its 54.79% ownership in Zheshang Securities (601878 CH), Zhejiang Expressway Co H (576 HK) is an attractive indirect vehicle to access the mainland securities sector.  
The attributable market cap of Zheshang equals 90% of ZJE's market cap, implying that the toll road business is almost free. However, Zheshang only contributed 16% of ZJE's 1H24 profit.
ZJE trades on 6.7x FY24F PER, vs. 31.3x for Zheshang and 17.6x for H-share securities companies. A stable toll road business also minimises the risk for ZJE.


Zhejiang Expressway (576 HK): Cheap Access to the Roaring Securities Sector

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Thematic (Sector/Industry)

<ul>
<li>China considers launching a stock stabilization fund which could release RmB800B in liquidity support for the market.  Securities firms and insurance companies will be the major beneficiaries.</li>
<li>The mega merger between  <a href="https://www.smartkarma.com/entities/haitong-securities-co-ltd-h" target="_blank" data-smartkarma-citation="entities:5665:1" rel="noopener">Haitong Securities Co Ltd (H) (6837 HK)</a> and <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> could be the precursor to further industry consolidation.</li>
<li>Hong Kong trading volumes and IPO's set to surge as Beijing lifts sentiment.</li>
</ul>


China considers launching a stock stabilization fund which could release RmB800B in liquidity support for the market.  Securities firms and insurance companies will be the major beneficiaries.
The mega merger between  Haitong Securities Co Ltd (H) (6837 HK) and Guotai Junan Securities (2611 HK) could be the precursor to further industry consolidation.
Hong Kong trading volumes and IPO's set to surge as Beijing lifts sentiment.


<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-international-capital-corporation-ltd" target="_blank" data-smartkarma-citation="entities:1071:1" rel="noopener">CICC (3908 HK)</a>'s announced merger with <a href="https://www.smartkarma.com/entities/dongxing-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:25320:1" rel="noopener">Dongxing Securities (601198 CH)</a> and <a href="https://www.smartkarma.com/entities/cinda-securities-company-limited" target="_blank" data-smartkarma-citation="entities:45389:1" rel="noopener">Cinda Securities (601059 CH)</a> will elevate it to the 3rd largest HK-listed Chinese securities company.</li>
<li>Based on our assumptions, its EPS will be diluted by 7.1%, BPS enhanced by 12.2%, and ROE lowered by 1pp for FY26, before accounting for synergy.</li>
<li>Its presence in Fujian (+616.7%), Liaoning (+500%), and Beijing (+100%) will be significantly enlarged. Additionally, it will open up potential benefits from optimisation.</li>
</ul>



CICC (3908 HK)'s announced merger with Dongxing Securities (601198 CH) and Cinda Securities (601059 CH) will elevate it to the 3rd largest HK-listed Chinese securities company.
Based on our assumptions, its EPS will be diluted by 7.1%, BPS enhanced by 12.2%, and ROE lowered by 1pp for FY26, before accounting for synergy.
Its presence in Fujian (+616.7%), Liaoning (+500%), and Beijing (+100%) will be significantly enlarged. Additionally, it will open up potential benefits from optimisation.


CICC (3908 HK): Initial Assessment of the Merger

China


Everbright Securities Co., Ltd. provides securities brokerage, trading, custody, underwriting, asset management, and investment consulting services.

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Everbright Securities (H) (6178 HK)

CICC (3908 HK): Merger Details Are Out

CICC released merger details, facing 8.5% EPS dilution, but justified by the rise to the 3rd largest securities company. Share price reaction may...

Osbert Tang, CFA

CICC (3908 HK): M&A Possibility

CICC announced that it has entered into agreements to merge with Dongxing Securities and Cinda Securities, instead of the widely rumoured China...

Osbert Tang, CFA

Zhejiang Expressway (576 HK): Cheap Access to the Roaring Securities Sector

Zhejiang Expressway provides indirect cheap access to mainland securities through its ownership in Zheshang Securities, with a stable toll road...

Osbert Tang, CFA

Hong Kong/China Brokers: TAKE THE OFFER!

The HK/China brokers: 6030, 3908, 6886, 6806, 6881, 1776, 6178, 1456, 165, and 6099 have gained between 90% and 100% since the report was published...

David Mudd

CICC (3908 HK): Initial Assessment of the Merger

CICC's merger with Dongxing and Cinda will make it the 3rd largest Chinese securities company, with diluted EPS, enhanced BPS, and lowered ROE for...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

CICC (3908 HK): Merger Details Are Out

​CICC released merger details, facing 8.5% EPS dilution, but justified by the rise to the 3rd largest securities company. Share price reaction may...

Osbert Tang, CFA

CICC (3908 HK): M&A Possibility

CICC announced that it has entered into agreements to merge with Dongxing Securities and Cinda Securities, instead of the widely rumoured China...

Osbert Tang, CFA

Zhejiang Expressway (576 HK): Cheap Access to the Roaring Securities Sector

​Zhejiang Expressway provides indirect cheap access to mainland securities through its ownership in Zheshang Securities, with a stable toll road...

Osbert Tang, CFA

Hong Kong/China Brokers: TAKE THE OFFER!

The HK/China brokers: 6030, 3908, 6886, 6806, 6881, 1776, 6178, 1456, 165, and 6099 have gained between 90% and 100% since the report was published...

David Mudd

CICC (3908 HK): Initial Assessment of the Merger

​CICC's merger with Dongxing and Cinda will make it the 3rd largest Chinese securities company, with diluted EPS, enhanced BPS, and lowered ROE for...

Osbert Tang, CFA

CICC released merger details, facing 8.5% EPS dilution, but justified by the rise to the 3rd largest securities company. Share price reaction may...

Zhejiang Expressway provides indirect cheap access to mainland securities through its ownership in Zheshang Securities, with a stable toll road...

CICC's merger with Dongxing and Cinda will make it the 3rd largest Chinese securities company, with diluted EPS, enhanced BPS, and lowered ROE for...