Enhance capital advantages, be optimistic about the synergy brought about by the merger, and focus on subsequent stock issuance pricing. On the evening of April 25, 2024, the company plans to issue shares to acquire control of Minsheng Securities and raise supporting capital. In the context of tightening brokers' refinancing, while the acquisition of Minsheng Securities increases the size of net assets, fund-raising helps strengthen the overall competitive advantage. I am optimistic about the synergy effects of the merger of Guolian Securities and Minsheng Securities in terms of mitigating risk control indicators, complementing investment banks and research businesses, complementing wealth management regions, and reducing comprehensive capital costs. In March 2023, the League of Nations Development Group won a 30.3% stake in Minsheng Securities with 1.98 times PB. Concerned about the current stock offering price and supporting capital raising. Currently, the PB (LF) of the League of Nations Securities is 1.67 times. We maintain the 2024-2026 net profit forecast of 80/9.8/1.19 billion yuan, corresponding to the 2024-2026 EPS of 0.3/0.3/0.4 yuan, respectively. The current stock price corresponds to 1.7/1.6/1.5 times PB, maintaining a “buy” rating.

The fixed increase was terminated, stock trading was suspended, and plans to issue shares to acquire 95.48% of Minsheng Securities's shares. On the evening of April 25, 2024, Guolian Securities announced the termination of the previous fixed increase. It plans to issue shares to acquire control of Minsheng Securities and raise supporting capital. The stock trading of the League of Nations Securities was suspended from the opening of the market on the 26th, and the suspension period is not expected to exceed 10 trading days. The initial plan is that Guolian Securities plans to acquire a total of 10.87 billion shares (95.48% of the total share capital) of Minsheng Securities held by counterparties (45 companies) such as Wuxi Guolian Development (Group) Co., Ltd. by issuing shares to purchase assets. Currently, the specific scope of the underlying asset, transaction method, transaction plan, share issuance price, and underlying asset price have not been determined.

Enhancing capital strength and meter usage capabilities helps business and regional complementarity, reduces comprehensive capital costs (1) increases net asset size and meter usage capacity, and improves risk control indicators. The net assets of Minsheng Securities at the end of 2023Q3 were 16.01 billion yuan, and the net assets of Guolian Securities at the end of 2023 were 181 billion yuan. According to this static calculation, after the acquisition of Minsheng Securities, the net assets reached 34.1 billion yuan, and the net asset ranking is expected to jump to the top 20. Judging from the equity multiplier (deducting customer security deposit), Minsheng Securities was 3.0 times at the end of 2023Q3, and Guolian Securities was 4.3 times at the end of 2023. The acquisition helped increase Minsheng Securities' ability to use net capital. The liquidity coverage/net stable capital ratio of Guolian Securities at the end of 2023 was 167.4%/133.5%; the liquidity coverage/net stable capital ratio of Minsheng Securities at the end of 2023Q3 was 184.0%/163.3%. The merger of the two is expected to ease the pressure on risk control indicators. (2) Investment banking and research business complement each other. In 2023, Minsheng Securities/Huaying Securities (China Union Investment Bank) had an IPO of 200.67/ 2.368 billion yuan, ranking 6/24, with a market share of 5.6%/0.7%. Up to now, Minsheng Securities has 36 reserve projects, ranking 4th in the industry. After the acquisition, the shortfall in Guolian Securities's investment banking business was made up for. In 2023, Guolian Securities/Minsheng Securities's public offering commission revenue was 103/366 million yuan respectively, +30%/+24% year over year, ranking 38/17. The combined commission revenue reached 470 million yuan based on static data, and the ranking jumped to 12th place. (3) Wealth management business regions complement each other.

As of April 25, 2024, Minsheng Securities had 86 outlets, including 26/8/8 branches in Henan, Guangdong, and Jiangsu respectively, with 0.23% share base market share in the first three quarters of 2023; League of Nations Securities had 101 outlets, of which Jiangsu Province/Guangdong/Beijing/Zhejiang Province each had 63/7/6/6 branches, with a share base share of 0.49% in 2022. (4) Comprehensive capital costs are expected to decrease after the merger. The interest rate on the 3-year corporate bonds issued by Guolian Securities in January 2024 is 2.8%, and the interest rate for the 3-year corporate bonds issued by Minsheng Securities in December 2023 is 4.2%. The capital cost of Guolian Securities is lower than that of Minsheng Securities, and the cost of comprehensive interest-paying debt is expected to decrease after the acquisition.

Risk warning: The progress and results of the integration are uncertain.