Guogun's plan to absorb and merge Haitong has been implemented

On October 9, Guojun and Haitong announced that Guojun shares were exchanged to absorb and merge with Haitong and supporting private fundraising of no more than 10 billion yuan, and trading will resume on 10/10; the AH exchange ratio is 1:0.62, that is, 1 share of Haitong exchanges 0.62 shares of Guojun, and provides acquisition requests and cash options. The name of the new company will be determined after delivery.

After the merger, the two have strong alliances and complementary advantages, forming brand advantages in terms of customer base, service capabilities, and operation management. Assuming that the market picked up significantly during the suspension of trading and an appropriate increase in stock base turnover, etc., EPS is expected to be 1.18/1.42/1.83 yuan (previous value: 0.95/1.05/1.13 yuan) in 2024-26, and BPS 19.47 yuan in 2024. A/H Comparable's 2024E PB Wind agreed to have an average expected value of 1.49/0.77 times. It will take some time to consider the integration, and the results still need to be observed. The A/H 2024E PB was given a certain discount of 1.35/0.70 times, and the target price was RMB 26.28 /HK$15.02 (previous value of RMB 19.33/HK$9.56), all maintaining a “buy” rating.

Raise supporting funds and provide requests/options

The share exchange ratio of the consolidated plan is 1:0.62. The determination method is the average transaction price of A shares after excluding interest in the first 60 trading days. Haitong and Guojun's A share exchange prices were 8.57 and 13.83 yuan/share respectively; H shares were finally determined to be HK$4.79 and HK$7.73 per share with reference to the A share exchange ratio. The transaction raised no more than 10 billion yuan in supporting capital, with an issue price of 15.97 yuan/share. Corresponding to the issuance of no more than 0.63 billion A shares, the Shanghai State-owned Company will subscribe in cash for purposes including asset management, internationalization, follow-up investment, market making, and IT investment. The plan grants dissenting shareholders the right to request a takeover and make a cash option, all of which are the highest transaction prices within 60 days.

After the merger, it has strong scale effects and advantages

The new company will have the industry's largest balance sheet and a balanced structure. Refer to 2023 data: 1) Big wealth: retail (35.93 million accounts), institutional and corporate customer size, and the number of key regional outlets all jumped to 1st place, and will have the largest number of investment teams, Guojun Fund Investment License + Haitong Fund Evaluation License; 2) Investment banks: Strong IPOs, showing clear competitive advantages and brand effects in science and technology innovation boards, integrated circuits, biomedicine, etc.; 3) Institutions and transactions: public distribution and escrow scale rose to the top of the industry; 4) Asset management AUM reaches 3.4 Growth, leading the industry; 5) International: A more comprehensive layout for the world's major economies and countries along the Belt and Road.

Optimistic about room to make up for growth in an active trading market

During the suspension period, policy support was strong, market trading was active, and turnover remained high. The 10/9 A-share brokerage sector reached a record high, Dongcai hit a single-day peak in individual stock transactions; the net change in the 10/8 financing balance reached a record high. Currently, leading brokers' A share PB (LF) is concentrated at 1.1-1.8x, H share PB (MRQ) is 0.7-1.2x, Guojun A/H share PB (LF) /PB (MRQ) is only 0.88/0.43 times; Haitong is 0.70/0.27 times. Considering the strong synergy and complementarity effects after completion of integration, it is expected that the stock price will have more room to make up and repair after the resumption of trading.

Risk warning: Merger progress falls short of expectations, and market sentiment falls short of expectations.