CICC Expectation of Merging Dongxing Securities to Complete in September

Overview

This report focuses on China International Capital (CICC) absorbing and merging Dongxing Securities and CICC Wealth progress, detailing M&A synergies and valuation logic. The report believes the M&A process may complete in September. Post-integration will strengthen capital strength and wealth management capabilities. Target price HK$28.80 reflects future growth potential.

Core views

The report points out CICC has completed the second board meeting review, plans to convene shareholder meeting on June 8, expects M&A completion in September. Institutional business integration requires 3-6 months, retail business integration approx 1 year. Synergies include: 1. Capital Supplement: Net assets increase from 48 billion RMB to 103 billion, supporting margin financing, derivatives, and private equity investment (3-year average ROE 14%), international business annualized ROE over 20%. 2. Wealth Management Expansion: Retail client base increases by 50%, branch ranking jumps to third nationwide. Client revenue improved via scalable operating model, product-driven growth and cross-selling contribute hundreds of millions RMB incremental revenue. 3. AMC Resource Synergy: Leverage AMC shareholder resources to expand asset investment management capabilities. ROE improvement drivers come from scale effect (profit margin 40.5%) and ROA optimization (offshore asset allocation + wealth management revenue growth). Valuation: Report adopts DDM model, current stock price corresponds to 0.7x 12-month adjusted net book value, Maintain Buy rating.

Analysis framework

Report adopts event-driven analysis framework, tracking key nodes of M&A process (Board Review → Shareholder Meeting → Regulatory Approval → Share Exchange). Assesses ROE contribution from capital supply via financial leverage analysis. Combines industry concentration analysis to judge market status improvement from branch expansion. Uses DCF model to calculate valuation anchor, compares historical PB with profit quality to determine safety margin.

Methodology notes

• Valuation MethodDDM Dividend Discount

  Adopts dividend discount model to assess intrinsic company value

  Calculate theoretical stock price by predicting future dividend cash flows and discounting, supports reasonableness of HK$28.80 target price

• Industry Analysis FrameworkSupply and Demand Framework

  Branch quantity and client base determine wealth management market position

  Branch ranking jumps from 14th to 3rd, combined with 50% client growth, forms economies of scale

• Company Fundamentals and Financial FrameworkROIC–WACC spread

  Capital cost optimization improves ROE

  After net assets increase to 103 billion RMB, high-yield business ratio (private equity/international business) increases driving ROE growth

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China International Capital-H (3908.HK)

  Direct beneficiary of M&A subject

  Strengths

  AMC resource synergy and branch expansion

  Weaknesses

  Long integration cycle

  Comparison

  Completed integration earlier than peers

  Risks

  Regulatory approval risk and execution uncertainty

Key data

• Target Price / Current Price28.80/20.30Implies 41.9% upside
• P/BV Valuation0.6x2026 Expected Valuation
• ROE Improvement40.5%Q126 QoQ improved to 40.5%
• Client Base Growth50%Post-Merger Retail Client Count

Impact & implications

M&A completion will reshape China securities industry landscape, CICC capital fund and branch scale significantly improved. Wealth management revenue growth and cost optimization expected to drive valuation repair, but need to monitor regulatory approval progress and integration risks.

Risks

• Risk of Regulatory Approval Not Passed
• Integration Cycle Exceeds Expectations
• Market Volatility Affects Asset Value
• Intensified Peer Competition

What to watch

• June 8 Shareholder Meeting Voting Result
• SSE M&A Committee Approval Progress
• International Business ROE Sustainability
• Wealth Management Client Retention Rate