Incident: On 3/25, CITIC Securities opened down significantly, closing down 4.9%/the brokerage sector falling 3.1% throughout the day.
The main reason for the decline was that the Shenzhen Stock Exchange initiated on-site supervision of CITIC Securities, the sponsor of Liangang Optoelectronics, on the evening of last Friday.
The responsibilities of investment banking intermediaries continue to be compacted, and there is no shortage of IPO projects being supervised on site. According to information disclosed by the Shanghai and Shenzhen Exchange, 33 companies to be listed were subject to on-site supervision and on-site inspection in 2023 (27 were terminated and withdrawn after inspection, accounting for 82%), of which 20 were supervised on-site; many listed and unlisted brokerage firms had projects supervised on site. According to the Shenzhen Stock Exchange announcement, after Liangang Optoelectronics's IPO application was accepted, the Shenzhen Stock Exchange issued three rounds of review inquiries and regulatory letters, but the responses from Liangang Optoelectronics and intermediaries were not clear enough, and the issues involved were not fully explained; in order to further consolidate the sponsor's “gatekeeper” responsibilities and improve the quality of the listing entrance from the source, the Shenzhen Stock Exchange decided to launch on-site supervision of Liangang Optoelectronics's sponsor, CITIC Securities.
Some brokerage firms were subject to regulatory penalties due to quality of practice issues during on-site supervision, but the overall impact on the investment banking business was small. Referring to previous cases, if there is an abnormal situation in the on-site supervision project, most sponsor agencies are issued regulatory warnings (for example, 23/11 Open Source Securities issued a warning letter and 24/01 Haitong Securities are subject to regulatory measures), which does not affect the normal development of the investment banking business.
CITIC Securities is the closest domestic first-class investment bank to the world's leading. According to the performance report, CITIC Securities's net profit in 2023 was 19.7 billion /yoy-7.7%. The company's size and profit had a big lead compared to the second tier of the industry, and the revenue from various businesses was balanced. Earlier, the Securities Regulatory Commission issued “Opinions on Strengthening the Supervision of Securities Companies and Public Funds and Accelerating the Construction of First-Class Investment Banks and Investment Institutions (Trial)”, which proposes to form 2 to 3 investment banks with international competitiveness and market leadership by 2035, which is expected to accelerate supply-side reforms in the industry; the company, as the absolute leader in the securities industry, will benefit more fully from the trend of increasing concentration.
Investment analysis opinion: The main reason for this sharp decline was short-term emotional turbulence. The company has long benefited from supply-side reform logic, the fundamentals are secure, and it maintains a “highly recommended” rating. By the close, CITIC Securities had a static PB of 1.13 times (historical low of 1.09 times), which was at the historical bottom.
Risk warning: Industry mergers and acquisitions fall short of expectations; capital markets fluctuate greatly; residents' asset allocation migration falls short of expectations