The Zhitong Finance app learned that Open Source Securities released a research report saying that through interbank mergers and acquisitions, Zheshang Securities is expected to achieve a leap in scale, complement regional retail customers, and enhance asset management capabilities. In the context of the reappearance of mergers and acquisitions cases in the industry after the League of Nations+People's Livelihood case, regulatory policy guidance (intensive development+support for the weak, encouraging mergers and acquisitions), and increasing differentiation in industry profits, industry mergers and acquisitions integration is expected to enter a period of acceleration, and we are optimistic about M&A theme opportunities in the brokerage sector. From an investment perspective, for acquirers, cases with undervaluation, no obvious runaway, reasonable purchase prices, and good expectations of integration results are more worth participating in. The acquieree often has a greater chance of winning because it enjoys logic such as scarcity premiums and reversal of difficulties.

Incident: Zheshang Securities announced on December 9 that it signed the “Guodu Securities Co., Ltd. Share Transfer Framework Agreement”.

Open source securities views are as follows:

Zheshang Securities is expected to become the largest shareholder of Guodu Securities. Guodu Securities has an assessed value of 15 billion dollars

Zheshang Securities plans to transfer 19.15% of Guodu Securities's shares held by five concessionaires, including Chongqing International Trust and Tianjin Zhongxin Technology Development. The final transfer ratio is subject to the final transaction documents. If the total share of Guodu Securities with complete shareholder rights such as voting rights and nomination rights transferred by Zheshang Securities from all transferors does not reach 15.8365%, then Zheshang Securities has the right not to carry out this transaction. In addition, Tongfang Co., Ltd. announced that its wholly-owned subsidiary Tongfang Venture Capital transferred 5.95% of its shares in Guodu Securities through a public listing on the equity exchange. The initial listing price is not lower than the assessed value of 893 million yuan after filing (corresponding to the total assessed value of Guodu Securities of 15 billion yuan, corresponding to 1.44 times the PB of the 2023 interim report). According to a report by the Financial Association, this portion of the shares may also be sold by Zheshang Securities. If the above two transactions are completed, Zheshang Securities will hold 25.1% of Guodu Securities and become the largest shareholder. The transaction is in line with the company's strategic plan and is conducive to leveraging the company's existing business advantages and the synergy between Guodu Securities business and enhancing the company's competitiveness.

The acquisition allows indirect participation in China-Europe funds to achieve cross-regional retail complementarity and asset management strength improvement

Through interbank mergers and acquisitions, Zheshang Securities is expected to achieve a leap in scale, complement regional retail customers, and enhance asset management capabilities.

(1) Guodu Securities was listed on the new third board. Judging from the disclosure of data from 88 brokerage firms in the 2023H1 report, Guodu Securities had a net asset of 10.6 billion yuan at the end of 2023H1, ranking 56, and Zhejiang Securities had a net asset of 27.4 billion yuan, ranking 27. After merging the two, the ranking may rise to 21. The annualized ROE of 2023H1 Guodu Securities/Zheshang Securities was 8.30%/6.97% respectively, and the equity multiplier at the end of the period (excluding customer security deposit) was 2.80/4.54 times.

(2) According to the China Securities Association, Guodu Securities Brokerage, Investment Banking, Liangfinance, and Self-Management ranked 61/71/50/48 respectively in the industry in 2021. The 2023H1 brokerage, investment banking, asset management, interest net income, and investment income accounted for 15%/2%/2%/4% 76%, respectively. Brokerage and investment income were the main revenue.

(3) According to the 2022 report of Guodu Securities, the number of wealth management customers of Guodu Securities increased dramatically from 2021-2022, with a peak value of more than 160 billion dollars in custodial assets, and a market share of 0.15% in stock turnover in 2022. It is registered in Beijing, with 56 sales departments and 4 branches at the end of 2023H1. Branches are mainly distributed in Beijing, Henan, and Shanghai, with 10, 9, and 7 branches, respectively.

(4) Guodu Securities holds 20% of the shares of the China-Europe Fund. The 2022/2023H1 China-Europe Fund's profit contribution reached 22/100 million yuan, the profit contribution reached 63%/23%, and the 2023H1 China-Europe Fund's annualized ROE was 25%. At the end of 2023Q3, the non-goods/partial AUM of China-Europe funds was $3038/234.2 billion, respectively, with a market share of 4.30%/1.46%.

Industry mergers and acquisitions integration is expected to accelerate, optimistic about mergers and acquisitions theme opportunities in the brokerage sector

In the context of the reappearance of mergers and acquisitions cases in the industry after the League of Nations+People's Livelihood case, regulatory policy guidance (intensive development+support for the weak, encouraging mergers and acquisitions), and increasing differentiation in industry profits, industry mergers and acquisitions integration is expected to enter a period of acceleration, and we are optimistic about M&A theme opportunities in the brokerage sector. From an investment perspective, for acquirers, cases with undervaluation, no obvious runaway, reasonable purchase prices, and good expectations of integration results are more worth participating in. The acquieree often has a greater chance of winning because it enjoys logic such as scarcity premiums and reversal of difficulties.

Beneficiary targets: Zheshang Securities (601878.SH), Caitong Securities (601108.SH), Fangzheng Securities (), China Galaxy (06881), Guolian Securities () 601901.SH 601456.SH

Risk warning: The acquisition is uncertain.