Event: the company announced on December 31, 2015 that the application for a rights issue has been approved by the CSRC, and issued a prospectus on January 11, 2016. According to the announcement, this rights issue will sell 3 shares for every 10 shares at a placement price of 4.24 yuan per share. If a full allotment is made, the funds raised will not exceed 4.5 billion yuan, and the funds will mainly be invested in credit, self-management, capital management and other businesses.
We believe that after the completion of fixed growth in 2014, the company's business has developed rapidly, and the net profit for that year has increased by 667%. After the completion of this rights issue, the company has more capital, can accelerate business layout, strengthen business innovation, and give a "Buy-A" rating. We expect the EPS from 2015 to 2017 to be 0.33,0.28,0.32 yuan respectively, with a six-month target price of 11 yuan.
The improvement of capital strength brings the inflection point of the company's performance. After the completion of the fixed increase in 2014, the net profit of the year increased by 667% compared with the same period last year, and the share price rose by more than 100% after the completion of the fixed increase. It is expected that there will be a double improvement in performance and share price after the completion of this rights issue.
The brokerage business relies on regional advantages, and the commission rate has remained high for a long time, keeping at 19.8% in the first half of 2015, much higher than the industry level. It is expected that the commission rate will not decline rapidly in the future, and the layout of C-type business department and Internet financial business will be accelerated. Credit business will benefit from the richer capital strength after the rights issue to become an important growth point. The asset management business started late but developed rapidly, and the risk capital fiduciary management business is expected to become a new growth point; with the increase in the scale of self-operation, 33% of the funds raised this time will be invested in proprietary business, and in the future, proprietary business will become the most important source of income for the company; investment banking business will develop simultaneously at home and abroad, and can deeply participate in the reform of state-owned enterprises in the province and the listing project of Lao enterprises.
Based in Yunnan, radiate the whole country, and go overseas. Backed by Yunnan Financial Special Zone, the company enjoys regional policy advantages, 1/3 of its income comes from within the province, the company is actively expanding its business throughout the country, and the number of branches outside the province has reached 30. At present, the company has set up branches in Laos, relying on the ASEAN Free Trade area and the Maritime Silk Road, will further develop overseas business.
Investment advice: given a "buy-A" rating, we expect the EPS from 2015 to 2017 to be 0.33,0.28,0.32 yuan respectively, with a six-month target price of 11 yuan.
Risk hint: the brokerage commission rate has dropped significantly, and the market systemic risk has led to a sharp decline in proprietary business income.