Haitong Securities announced that it has completed the issuance of additional A shares. The issue price was RMB 12.80, and a total of 1.56 billion new shares were issued, raising 20 billion yuan in capital. Shanghai Guosheng became the largest single shareholder with 10.4% of the shares. The potential for state-owned enterprise reform is a catalyst for Haitong Securities stock prices. We reduced our earnings per share forecast for FY20-22 by 5.1-11.2% to reflect the effects of diluted earnings per share. Reiterating the “Overweight” rating, the new target price is HK$10.40, and the change is relatively small. This is because our previous target price took into account the potential impact of the increase. Raising 20 billion yuan in additional A shares, Haitong Securities completed the issuance of 1.56 billion new A shares (about 12% of its expanded share capital) to 13 investors (Figure 1). The issue price was RMB 12.80, a 13.5% discount and an 84% premium, respectively, from the closing prices of A shares and H shares on August 6. The total amount raised was RMB 20 billion. Proceeds will be used to develop capital intermediation services, further enhance financial service capabilities, expand the scale of FICC investment, optimize the balance and liability structure, increase investment in information system construction, enhance the company's overall level of informatization, increase capital investment in investment banking business, further promote investment banking business development and supplement working capital. The share capital is closer to CITIC Securities. We estimate that after the issuance of Haitong Securities, its total share capital will increase to RMB 158 billion by the end of 2020, while the total share capital of CITIC Securities by the end of 2020 is expected to be RMB 188 billion. Therefore, issuing additional A shares will help Haitong Securities narrow the equity gap to less than 16%. Shanghai Guosheng Group, a potential beneficiary of Shanghai's state-owned enterprise reform, is one of the subscribing agencies. The group is a state-owned operating platform under the Shanghai Municipal Government, and is the largest single shareholder with 10.4% of the shares. It remains to be seen whether Haitong Securities will participate in more state-owned enterprise reforms in Shanghai after completing the additional issuance. In particular, we have noticed that Shanghai state-owned enterprises such as Shanghai Haiyan Investment, Shanghai Electric, and **** Foods have all participated in this increase. Reiterating the “Overweight” Rating We reaffirm the “Overweight” rating. The new target price was slightly lowered from HK$10.80 to HK$10.40 to reflect the impact of the increase in issuance. Since our earlier target price has taken into account the potential impact of the increase, the target price change this time is relatively small. According to Gordon's growth model, our target price is equivalent to 0.78 times the net market ratio (beta is 1.45; cost of equity is 9.84%; return on equity in the medium term is 9%). The stock's net market ratio in 2020 is 0.57 times, which is 1.5 standard deviations below the historical average.