Incident: Guolian Securities announced on August 8 that it plans to purchase 99.26% of the total shares of Minsheng Securities held by 45 counterparties, including the League of Nations Group and Fengquanyu, by issuing A-shares at a transaction price of 29.492 billion yuan. At the same time, it is planned to issue shares to no more than 35 specific investors to raise supporting capital, and the total amount of supporting capital raised will not exceed RMB 2 billion.

Transaction consideration has been implemented, and there is a partial premium over recent peer cases, reflecting good integration expectations:

This announcement mainly determined the assessed value of Minsheng Securities, transaction prices, counterparties, and the biennial audit report of Minsheng Securities. In this transaction, Guolian Securities decided to acquire 99.26% of Minsheng Securities's shares, with a corresponding transaction price of 29.482 billion yuan. As of 2024Q1, the net assets of Minsheng Securities were 16.049 billion yuan. The consideration for this transaction corresponds to a PB valuation of 1.85x, which is lower than the previous valuation of 9.105 billion yuan to acquire 30.30% of Minsheng Securities shares (1.95xPb), but there is a partial premium compared to recent securities industry acquisitions (in May 2024, Zheshang Securities transferred 7.69% of Guodu Securities's shares. The transaction price was 1.009 billion yuan, corresponding valuation of 1.21xPb).

There were minor adjustments to the restructuring plan, with no substantial impact: Compared with the May transaction plan, there are 2 major changes in the transaction draft announced this time: 1) Minsheng Securities repurchased and recovered the relevant shares withdrawn free of charge from the Minsheng Securities Equity Incentive Plan carrier in accordance with the provisions of the “Employee Equity Incentive Plan”, and carried out capital reduction processing. The number of shares of Minsheng Securities participating in the restructuring held by other counterparties remained unchanged, and the corresponding proportions were adjusted accordingly. 2) The original counterparty, Oceanwide Holdings, withdrew from the transaction and no longer continued to participate in the transaction with its 0.74% shares in Minsheng Securities.

Comprehensive strength has been greatly improved, and the integration results are worth looking forward to: According to the “Examination Preparation and Review Report” issued by Xinyong Zhonghe, using the 2023 financial data as a benchmark, the total assets/net assets of the League of Nations Securities will increase by 84%/163% to 160.4/46.8 billion yuan, respectively. In the current period, it can rank 21/17 in the industry, up 11/23 places from the original ranking; revenue/net profit will increase by 127%/90% to 6.7/1.3 billion yuan, respectively, and can rank 25/29th in the industry in the current period. 17/9 places higher than the original ranking. Furthermore, Guolian Securities and Minsheng Securities have strong structural and regional advantages in terms of business, and this transaction is expected to push the two brokerage firms to fully play their complementary roles.

Profit forecast and investment rating: The acquisition process is progressing smoothly. We maintain our previous profit forecast. We expect the company's net profit to be 4.03 /0.84/0.987 billion yuan respectively in 2024-2026, corresponding growth rates of -40.01%/108.45%/17.52%, and the corresponding EPS is 0.11/0.24/0.28 yuan, respectively. The current market value corresponds to the 2024-2026 PB valuation of 1.55 /1.36 /1.32 times, respectively. We are still optimistic that the company's subsequent endogenous growth will go hand in hand with epitaxial expansion, and maintain a “buy” rating.

Risk warning: 1) The effect of integration falls short of expectations; 2) the equity market fluctuates greatly; 3) Industry regulation is getting stricter.