The company's recent situation
On the evening of August 8, Guolian Securities issued an announcement on issuing shares to purchase assets and raise supporting capital and related transaction reports (draft). Following the plan announcement issued on May 14, Guolian Securities's acquisition of Minsheng Securities made further substantial progress. Compared with the plan, this draft determined the assessed value of Minsheng Securities, the purchase transaction price, etc., and made two adjustments at the same time: one is the repurchase of part of Minsheng Securities shares and the free recovery and capital reduction, and adjustment of the total share capital of Minsheng Securities; the other is that the original counterparty, Oceanwide Holdings, withdrew from the transaction and adjusted the underlying assets from 100% of the original Minsheng Securities shares to 99.26% of the shares.
reviews
Additional shares were issued at a premium to purchase assets, and a transaction price of 29.5 billion yuan was determined. According to the latest draft announcement, Guolian Securities plans to issue A shares to 45 counterparties including the League of Nations Group, purchase 99.26% of their total shares in Minsheng Securities, and raise supporting capital simultaneously. In terms of transaction consideration, this draft confirms that the transaction price of the underlying asset is 29.492 billion yuan. Combined with 99.26% of the shares corresponding to Minsheng, we estimate the purchase price of about 1.85 times P/B. In terms of the issue price and quantity, the issue price of assets purchased in this issue was adjusted from 11.31 yuan/share (average stock trading price for 120 trading days before the pricing basis) to 11.17 yuan/share, a 14% premium over the closing price on August 8. We believe that higher pricing reduces the dilution of shareholders' rights to a certain extent; according to the announcement, the number of shares issued this time was 2640.2691 million shares, accounting for 48.25% of the total share capital of the listed company after issuance (without considering supporting financing).
Simultaneously raise supporting capital in fixed increases to support the development of Minsheng Securities business. According to the latest announcement, Guolian Securities plans to issue shares to no more than 35 specific investors, raise no more than 2 billion yuan of supporting capital, and issue no more than 0.25 billion yuan of A-shares. The fixed increase price has not yet been determined, but it is not lower than 80% of the average transaction price of A-shares in the 20 trading days before the pricing benchmark for raising supporting capital, and not lower than the net assets of the company's most recent audited parent before this issuance. Supporting funds are used to develop the Minsheng Securities business. Of this, no more than 1 billion yuan is used for wealth management business, building a service ecosystem, optimizing network layout, etc., and no more than 1 billion yuan is used for information technology, consolidating the foundation of science and technology, and strengthening the construction of a digital center.
Business and regional advantages complement each other, and it is expected that “1+1>2” will develop by leaps and bounds. Minsheng Investment Banking is leading the industry, and also has advantages in fields such as institutional research and sales and equity investment; the League of Nations has distinct characteristics and advantages in wealth management, fund investment, asset securitization, and derivatives business. At the same time, Minsheng branch outlets focus on covering the Henan region, and the League of Nations has advantages in Wuxi and southern Jiangsu.
Based on the net assets and supporting capital raised by the two companies at the end of 2023, we expect the net asset size of the company to be in the top 20 in the industry after the merger. We believe that after the integration of the two brokerage firms, they will further strengthen their respective business and regional advantages, achieve strategic collaboration, scale expansion and strength, and enhance overall market competitiveness.
Profit forecasting and valuation
Taking into account market fluctuations and declining investment profits, the company's 24/25e profit was reduced by 52%/36% to 0.33/0.59 billion yuan without considering people's livelihood. The current A share price corresponds to 24/25e 1.6x/1.5x P/B, and the H share price corresponds to 24/25e 0.4x/0.4x P/B; we are optimistic that post-merger and acquisition business and regional synergy will be highlighted, maintaining A-shares outperforming the industry and target price of 14.1 yuan, corresponding to 24e 2.2x P/B and 43% upward space; maintaining H shares outperform the industry and target price of HK$4.3, corresponding to 24e 0.6x P/B and 47% upward space.
risks
The risk of market fluctuations, uncertainty in regulatory policies, and progress in mergers and acquisitions have fallen short of expectations.