Source: Brokerage China Author: Qu Hongyan Recently, China Yangtze Power hit a historical high and once again showed the slow bull stock trend of "tripling in ten years". The slow bull market has left behind many passers-by and brought good returns to the steadfast investors. It is "rare for those who triple in one year to be like carp jumping over the dragon gate, while those who double in three years are few and far between." On the other end of the investment world, however, violent collapses are also deafening, with many financial products suspected of "Ponzi schemes" ceasing payments, leaving investors with no hope of recovering their investments. Both positive and negative cases illustrate the importance of forming a suitable mentality towards money in one's lifetime; otherwise, sooner or later, you will divorce yourself from your money. "I call this the money mind, a person's IQ can reach 120, 140, or even higher levels, and perhaps some people's minds are good at doing one thing, while others are good at doing another. They can do things that most ordinary people can't do. But I know some very smart people who make very foolish decisions because they lack the money mind." Buffett once said so. The so-called money mind refers to believing in common sense, believing in compound interest, being cautious and rational, thinking independently, prioritizing security over return, not dealing with people with questionable character, not easily guaranteeing for others, not believing in windfall profits, and not trying to cross legal norms for extra benefits. In today's world of ubiquitous information, everyone's wealth may become the "prey" of those with ulterior motives. Only with the money mind, can one form good behavior habits and shield oneself from separating from one's wealth. Do not entrust your wealth easily. Wealth is easy to lose but hard to accumulate, and trust is a vital reason leading to the rapid loss of wealth. "Do not allow anyone else to manage your business unless you can watch their every move closely and understand their behavior; or you have strong reasons to believe in their character and ability. For investors, this criterion determines when you can let someone else make investment decisions for you." Graham's criterion written eighty years ago is so clear. Almost all the investors who lost their wealth in the financial products have violated the above two criteria. They did not have the ability to closely supervise the whereabouts of their funds, nor did they have sufficient reasons to believe in the character of the product issuers. They easily invested their own wealth solely based on others' glib tongue and a piece of commitment paper. They did not act as gatekeepers of their own wealth and ended up with nothing left even if the government punished the wrongdoers. "An ounce of prevention is worth a pound of cure." This is a phrase Munger often says. Destiny must be in one's own hands, and investors with a suitable money mind will try their best to find suspicious points in their investments to protect the safety of their principal. For example, whether the manager is trustworthy, whether the underlying assets are profitable, whether oneself can timely monitor the risks in the investment process, and whether the sales staff is obtaining large commissions. As long as any unreliable signs are found, these investors firmly will not invest their money. Do not desire to get rich quick. As in the capital market and anywhere else, making money is not easy, and desiring to get rich quick will lead to quick loss of wealth. In the capital market, the desire to get rich quickly often leads to investors over-allocating specific stocks, industries, or assets at the worst time. For example, buying high-risk stocks that can gain huge returns once an adventure succeeds, but the chance of success is very small, also known as "whispering stocks" by legendary fund manager Peter Lynch. "They often tell investors a story with explosive effects. These 'whispering stocks' have a hypnotic effect on people, and it is easy for you to believe that the story the company tells has an emotional appeal that can easily confuse you." This is like hearing a very tempting "sizzling" sound, making you salivate, but you did not notice that there is no steak on the grill. In the eyes of investors who lack the money mind, stable yield provided by blue chips such as China Yangtze Power cannot meet their demands. However, historical experience clearly shows that buying stocks lacking in safety solely based on imagined high yields is unwise. The long-term average investment return of general stocks is 9%-10%, which is also the average investment return of stock indexes in history, a benchmark to measure one's investment performance and the benchmark to measure fund investment performance.

Authors: Xu Ying, Sun Xiangfeng

Just last night, Guotai Junan and Haitong Securities simultaneously released merger and reorganization related proposals and joint announcements on the Shanghai Stock Exchange and the Hong Kong Stock Exchange, planning to resume trading on October 10, 8 trading days earlier than the expected suspension time announced for A shares.

Market analysis believes that the establishment of a first-class investment bank structure is gradually becoming clear, and under the supply-side reform of the brokerage industry, the feasibility and urgency of strategic restructuring of leading brokerages are increasing. Guotai Junan and Haitong Securities are expected to become powerful competitors after the merger and reorganization, with the feasibility and urgency of strategic restructuring of leading brokerages to be further enhanced in the future.

Merger and Acquisition Plan Released

According to the announcements of the two companies on October 9, the two brokerages will merge and acquire by stock exchange at market prices, with the same stock exchange ratio for A-shares and H-shares, in order to effectively balance the interests of all parties shareholders.

Specifically, the pricing basis for the stock absorption and merger by Guotai Junan is the average trading price of A-shares and H-shares 60 trading days prior, at 13.98 yuan/share and 7.89 Hong Kong dollars/share respectively. After ex-dividend and ex-rights adjustments, the trading average prices are 13.83 yuan/share and 7.73 Hong Kong dollars/share. For Haitong Securities, the average trading prices of A-shares and H-shares are 8.60 yuan/share and 3.61 Hong Kong dollars/share respectively. After ex-dividend and ex-rights adjustments, the trading average prices are 8.57 yuan/share and 3.58 Hong Kong dollars/share.

Based on the above, the stock exchange price for gtja's A shares is 13.83 yuan/share, while the stock exchange price for haitong sec's A shares is 8.57 yuan/share. The exchange ratio between haitong sec and gtja is 1:0.62, meaning every 1 share of haitong sec stock can be exchanged for 0.62 shares of gtja stock of the same class.

At the same time, this stock-for-stock absorption and merger will provide the right to purchase to dissenting shareholders of gtja who meet the conditions, and provide the right to choose cash to dissenting shareholders of haitong sec who meet the conditions.

The purchase request price for dissenting shareholders of gtja's A shares is 14.86 yuan/share, and for H-share dissenting shareholders it is 8.54 Hong Kong dollars/share. The cash choice price for dissenting shareholders of haitong sec's A shares is 9.28 yuan/share, and for H-share dissenting shareholders it is 4.16 Hong Kong dollars/share.

On the basis of the stock exchange absorption and merger, gtja plans to issue no more than 10 billion yuan A shares to Shanghai State-Owned Assets Operation Co., Ltd., the controlling shareholder, to raise supplementary funds. The controlling shareholder will increase its shareholding in gtja above the pre-suspension share price per net asset value per share and commit to not reducing its shares for 5 years.

Institutions are bullish on the upside potential.

"Since the suspension on September 6th, the A-share and Hong Kong stock brokerage sectors have risen by about 50% and 80% respectively. After resumption of trading, both companies' AH shares are expected to catch up. A large non-bank chief analyst at a brokerage firm told Chinese journalists at the brokerage firm, 'For the brokerage sector, there is a possibility of a certain degree of linkage in the early stages of resumption of trading, and it is expected to trade independently later.'"

According to the aforementioned non-bank chief analyst, the PB valuations of the A-share/Hong Kong stock brokerage sectors are 1.5 times/0.8 times respectively. During the 2014-2015 market, the highest PB valuations of the A-share brokerage sector/Hong Kong stock citic sec reached 4.9 times/3.2 times respectively. At the beginning of 2019, the highest PB valuations of the A-share/Hong Kong stock brokerage sectors reached 1.9 times/1.3 times respectively. Therefore, the brokerage sector is still bullish.

Fangzheng Securities' Chief Analyst, Xu Yishan, stated that GTJA, Haitong Securities will resume trading, and attention can be paid to the progress of regulatory approval in the future, with expectations of accelerated overall process. Both AH stocks of the two sides will resume trading on October 10th. After this absorption and merger transaction, further steps will require approval from both boards of directors and shareholders' meetings, approval from the Shanghai State-owned Assets Supervision and Administration Commission, approval from the China Securities Regulatory Commission, among other processes. Referring to historical cases, this process usually takes about 1 year, but considering recent developments in the brokerage sector.MergerThe integration pace is relatively fast (guolian securities and minsheng securitiesMergerThe materials have been submitted to the CSRC for less than one month since acceptance, and it is expected that the subsequent process of this transaction will be accelerated.

She stated that after the merger, the comprehensive strength of the new brokerage entity is expected to leap to the top of the industry, with net assets expected to jump to the top of the industry, and the anticipated landing of 10 billion matching fund-raising is expected to further enhance the capital strength of the combined new entity. At the same time, the competitive strength of various businesses of the new entity is expected to strengthen: Haitong Securities has a strong investment banking business, while Guotai Junan has a relatively complete layout in investment and derivative businesses. After the combination of the two, the new entity's competitiveness in investment banking business is expected to enter the industry's elite, and the development space for proprietary and derivative businesses is expected to further open up.

Regarding the future market, Xu Yishan believes that the brokerage sector has generally risen recently, paying attention to the resumption of trading of Guotai Junan and Haitong Securities for opportunities for catching up. The average closing prices of A/H dual-listed securities in two locations surged by 40%/80% before the suspension, with Guotai Junan's A/H valuation at 0.88 times PB / 0.43 times PB, and Haitong Securities' A/H valuation at 0.70 times PB / 0.27 times PB; there is significant upward space from the current average PB of dual-listed securities in both locations.

"The pattern of building a first-class investment bank is gradually becoming clear, and under the supply-side reform of the brokerage industry, the feasibility and urgency of strategic reorganization of leading brokerages have been enhanced." Xu Yishan stated that after the successful landing of the merger and reorganization of Guotai Junan and Haitong Securities, they are expected to become strong competitors, further enhancing the feasibility and urgency of strategic reorganization of leading brokerages in the future. It is recommended to pay attention to CITIC Securities / China Securities Co., Ltd., China Galaxy / China International Capital Corporation, Guotai Junan / Haitong Securities and corresponding H-shares, etc.

Caitong Securities' Chief Non-Banking Officer, Xu Yingying, stated, 'With the rapid increase in market turnover and the significant rise in equity markets, brokerage brokerage and proprietary businesses will release substantial performance elasticity, driving a significant improvement in brokerage performance. At the current stage, brokerage stock valuations resonate positively with performance, and continue to be bullish on the top brokerages with ROE improvement under the optimization of resource integration and risk control indicators.'

Strong alliance to create a first-class investment bank

According to the information received by the Securities Times, in this transaction, based on the principles of strong alliance, complementary advantages, and equal merger, Guotai Junan will absorb and merge Haitong Securities by stock swap. After the merger, the company will further strengthen its functional positioning, take serving the construction of a financially strong country and Shanghai International Financial Center as its responsibility, benchmarking international first-class standards, and accelerate towards becoming an investment bank with international competitiveness and market leadership.

An analyst from a non-bank brokerage firm mentioned that after the merger of the two companies, several business indicators may rise to the top of the industry. After the merger, the scale of retail, institutional, and corporate clients is leading across the board, securities brokerage, futures brokerage, and margin financing businesses all rank first in the industry, while total assets and net assets rank first.

Additionally, it is also expected that there will be more intensive and efficient operational management after the merger. As of the end of June, the total assets and net assets of the two companies after the merger were 1619.5 billion yuan and 331.1 billion yuan, both ranking first in the industry, and the overall structure of assets is more balanced, significantly enhancing the risk-bearing capacity, expanding capital utilization space, and improving capital efficiency of the merged company.

From a policy perspective, multiple policies have been introduced this year to support large financial institutions to become stronger and better, ushering in a historic development opportunity for the securities industry.

The Central Financial Work Conference proposed to "cultivate top-tier investment banks and investment institutions" and "support state-owned large financial institutions to become stronger and better." In March 2024, the China Securities Regulatory Commission issued the "Opinions on Strengthening the Supervision of Securities Companies and Public Funds to Accelerate the Construction of Top-tier Investment Banks and Investment Institutions (Trial)". It is suggested that by 2035, 2 to 3 investment banks and investment institutions with international competitiveness and market leadership should be established.

In April 2024, the State Council issued the "Opinions on Strengthening Supervision, Preventing Risks, and Promoting the High-Quality Development of the Capital Market", proposing to promote the high-quality development of securities and fund institutions. It supports top institutions to enhance their core competitiveness through mergers, acquisitions, organizational innovation, and encourages leading companies to focus on their main businesses and increase efforts to integrate listed companies in the industry chain.

In September 2024, the China Securities Regulatory Commission issued the "Opinions on Deepening the Market Reforms for Mergers and Acquisitions of Listed Companies", stating its support to enhance the core competitiveness of listed securities companies through mergers and acquisitions to accelerate the construction of top-tier investment banks.

Editor/Rocky