Merger of CITIC Securities and CITIC construction investment? Valuation differences or technical barriers

category:Finance
 Merger of CITIC Securities and CITIC construction investment? Valuation differences or technical barriers


Clarification has not dampened the enthusiasm for speculation

Both CITIC Securities and China CITIC construction investment limited their trading limits, and rumors of the merger of the two head brokers were still fermenting. The clarification announcement issued by the two companies on the evening of July 2 did not dampen the enthusiasm of market speculation. Many investors believe that before and after the merger of CNR and CNR in 2015, they also experienced a process of denial first and then full implementation.

At the end of July 3, the total market value of CITIC Securities and CITIC construction investment were 370.611 billion yuan and 364.733 billion yuan respectively. In the same securities company, the premium rate of China Securities construction investment ah shares is more than three times.

According to relevant media reports, Yang Minghui, general manager of CITIC Securities, once again replied to the matter at the shareholders meeting held on June 23. The company did not hear about the merger with CSCI.

I personally think its a rumor. Its not only technical, but also unlikely basically. Its more of an excuse for hype in the secondary market. As for the rumors about the merger of the two, a senior executive of a well-known securities firm in Shenzhen told the first financial reporter that he was not optimistic about the feasibility of the merger when the market was hot.

According to the financial data of the whole year of 2019, the operating revenue of CITIC Securities was 43.14 billion yuan, the net profit was 12.229 billion yuan, the earnings per share was 1.01 yuan, and the net assets per share was 13.34 yuan. In terms of the return on net assets (ROE), it was 7.76% in 2019. Although the market was good in 2019, the roe level of CITIC Securities was lower than 8% for four consecutive years, which was not comparable with 12.18% in 2014 and 16.63% in 2015, and exceeded that in those two years More than 10% is achieved in the context of a bull market in which the daily turnover once approached 2.5 trillion yuan.

In terms of China CITIC construction investment, the total revenue in 2019 is 13.693 billion yuan, less than one third of that of CITIC Securities, with a net profit of 5.502 billion yuan, which is less than half of that of CITIC Securities. The earnings per share is 0.67 yuan, and the net assets per share is 6.09 yuan. The return on net assets is slightly higher than that of CITIC Securities, which is 11.51% in 2019, but lower than 10% in 2017 and 2018.

The bigger difference in business between the two lies in the scale of self operated business. The trading financial assets of CITIC Securities is nearly four times that of CSCI. According to the annual report of CITIC Securities, the trading financial assets at the end of 2019 was 355.348 billion yuan, an increase of 43.61% year-on-year, accounting for 44.88% of the total assets at the end of the period. The main reason is the increase of investment scale of trading financial assets and the change of fair value. According to the annual report of CSCI, the trading financial assets at the end of the year amounted to 91.756 billion yuan, an increase of 60.06% year-on-year, accounting for 32.1% of the total assets. The reason for the change is the increase of investment in current bonds.

At present, although the market value of the two is very close, in fact, there is a big difference in the data of valuation, operating income and net profit, and only the return on net assets is relatively close. However, the huge difference in valuation may become a resistance to the merger of the two. Whether shareholders and regulators will agree is a big unknown factor.

Valuation mismatch or technical barriers to merger

As for the possibility of potential merger between the two, the person in charge of merger and acquisition of a well-known securities firm in Shanghai told the first financial reporter that in general, such a merger of listed companies can only be stock exchange, and the pricing must be close to the market transaction price. If there is a big difference in the valuation of stock exchange between listed companies, it will not be easy for the general meeting of shareholders to pass, and there will be some pressure on the regulatory level.

Similar to the views of senior executives of Shenzhen securities companies, the person in charge of the M & a business believes that the merger of the two is technically difficult to achieve for the time being, which is totally different from CITIC Securitiess practice of mergers and acquisitions in times of market downturn.

In January 2019, when the market was in a downturn, CITIC Securities and Yuexiu financial holding (000987. SZ) issued a restructuring plan. CITIC Securities planned to issue 793 million shares to Yuexiu financial holdings to merge Guangzhou securities (divestiture 99.03% equity of Guangzhou futures and 24.01% equity of Golden Eagle Fund). The transaction consideration was 13.46 billion yuan, and the issuing price of CITIC Securities was 16.97 yuan per share. Guangzhou securities issued 793 million shares to Yuexiu financial holding The total owners equity attributable to the parent company was only 11.128 billion yuan.

It can be seen that at that time, the price to book ratio of CITIC Securities merger and acquisition of Guangzhou securities was only 1.21 times, which was significantly different from the current valuation of a shares of China CITIC construction investment. At that time, Guangzhou securities was only a subsidiary of Yuexiu financial holding, and Guangzhou securities itself was not a listed company, which provided room for the final pricing of CITIC Securities restructuring program at that time.

According to the above-mentioned person in charge of M & a business of Shanghai securities companies, at that time, the pricing of Guangzhou securities was low, and there were some factors of potential asset quality problems, such as the potential loss in equity pledge business; the equity of CITIC Securities acquired by Yuexiu financial holding has also increased a lot, and the method of stock exchange allows both parties to have better returns, and Yuexiu financial holding has obtained CITIC Securities After equity ownership, there is no need to worry about the business level.

According to the announcement 18 months ago, in terms of total assets, net assets and operating income, the proportion of the underlying assets (Guangzhou securities subject) in CITIC Securities was 6.79%, 8.79% and 4.03% respectively; 793 million shares to be issued in the transaction accounted for 6.54% of the total equity of 12.117 billion shares of CITIC Securities before the transaction. CITIC Securities said, Guangzhou securities will be positioned as a subsidiary operating specific businesses in specific regions in the future..

CITIC Securities acquired Wantong Securities and Jintong securities successively in 2004 and 2006. In the past integration, CITIC Securities divided the business of the parent company and the subsidiary company, and positioned the two subsidiaries as the subsidiaries operating specific business in specific regions. In 2012, CITIC Securities acquired Lyon securities to improve the overseas business layout. It can be seen that many mergers and acquisitions of CITIC Securities in the past were carried out at a time of market downturn, and the target of merger and acquisition was relatively large compared with the overall strength of CITIC Securities.

And this time, the strength gap between CSCI and CITIC Securities is not so big.

At the end of June, at the weekend of the Dragon Boat Festival holiday, some media reported that China securities regulatory accounting planned to issue securities business licenses to commercial banks, or would select at least two pilot securities companies from several major commercial banks.

Everbright Securities (601788. SH), China Merchants Securities (600999. SH), Societe Generale Securities (601377. SH) have strong shareholders, and the major shareholders of each securities firm also have strong banks. Banks and securities dealers are brother companies with good relations. Since June 19, these securities companies have led the whole stock market to rise, and then the rumors of the merger of CITIC Securities and China Securities Construction Investment Co., Ltd. have been fermented. The two continuous trading limits have also driven the Shanghai stock index to break through 3100 points. In the view of many investors, this marks the full opening of the bull market. It is also driven by the regulatory authorities to make the securities companies bigger and enhance their strength. However, if we really want to implement them, it is indeed a test of the wisdom of the investment bank team. How to design a scheme to obtain the approval of the shareholders meeting is a key point. Securities analysts to the first financial reporter said. Source of this article: Guo Chenqi, editor in charge of first finance and Economics_ NBJ9931

Everbright Securities (601788. SH), China Merchants Securities (600999. SH), Societe Generale Securities (601377. SH) have strong shareholders, and the major shareholders of each securities firm also have strong banks. Banks and securities dealers are brother companies with good relations. Since June 19, these securities companies have led the whole stock market to rise, and then the rumors of the merger of CITIC Securities and China Securities Construction Investment Co., Ltd. have been fermented. The two continuous trading limits have also driven the Shanghai stock index to break through 3100 points. In the view of many investors, this marks the full opening of the bull market.

It is also driven by the regulatory authorities to make the securities companies bigger and enhance their strength. However, if we really want to implement them, it is indeed a test of the wisdom of the investment bank team. How to design a scheme to obtain the approval of the shareholders meeting is a key point. Securities analysts to the first financial reporter said.