Zhongtai: Market value management guidelines officially implemented, capital market long-term benefits, recommend focusing on Dongcai (300059.SZ) and others.
17/11/2024
GMT Eight
Zhongtai released a research report stating that the official version of the market value management guidelines has been implemented, which will gradually promote the reasonable reflection of investment value of listed companies in the quality of listed companies and benefit the capital market in the long term. It is recommended to pay attention to the securities industry that will benefit from the enhancement of market activity and the expected increase in industry concentration under merger and acquisition integration. Specific stocks to watch include: East Money (300059.SZ), CITIC, Huatai, Guojun, CICC, and Galaxy.
Background of the Market Value Management Policy:
1. The new "Nine National Guidelines" lay the foundation: Encourage market value management, mergers and acquisitions, dividends, and buybacks. In April 2024, the new "Nine National Guidelines" proposed: Promote listed companies to enhance investment value.
2. Since the beginning of the year, the deepening of capital market reforms and the increasing attention of the State-owned Assets Supervision and Administration Commission to market value management have been discussed in relevant meetings.
Main contents of the official draft of the Market Value Management Guidelines:
1. Clarify the definition of market value management. Market value management should be based on improving company quality and should use mergers and acquisitions, equity incentives, employee stock ownership plans, cash dividends, investor relations management, information disclosure, share repurchases, etc., in accordance with laws and regulations.
2. Clarify the responsibilities of relevant entities. Defined the responsibilities of the board of directors, directors, senior management, controlling shareholders, and other relevant entities of listed companies.
3. Clarify the special requirements for two types of companies. Companies that are main components of major indexes should establish market value management systems, clarify specific responsibilities and division of labor; long-term companies with undervalued stocks should disclose valuation enhancement plans, etc.
4. Clarify prohibited activities. Improve compliance awareness, and prohibit market manipulation, insider trading, and improper information disclosure in market value management.
Compared to the consultation draft, there have been some changes in terms of mandatory measures and wording in the official draft of the Market Value Management Guidelines:
1. Increasing the coverage of indexes for which market value management systems should be established. In addition to the Shanghai and Shenzhen 300, Technology 50, Technology 100, Growth Enterprise Market Index, and BSE 50, the China Securities A500 and Growth Enterprise Market Middle Cap 200 indexes have been added.
2. Only require long-term companies with price-to-book ratios lower than the industry average to establish valuation enhancement plans and provide detailed explanations, rather than all long-term undervalued companies as in the consultation draft.
3. No longer require disclosure of market value management systems, only the disclosure of their establishment.
4. Specify regulatory measures, which can include ordering corrections, regulatory discussions, and issuing warning letters.
5. Add a duty for the secretary to report significant public opinion that may affect the company's stock price to the board of directors in a timely manner.
Market value management logic and path in this round:
1. The theoretical logic of market value management - a positive feedback loop from value creation to value realization. For listed companies, market value management is a long-term strategic management process: P=EPS*PE.
2. Market value management needs to coordinate efforts in three dimensions of value creation, value transmission, and value realization. Improve the company's intrinsic value EPS - choose the appropriate way to convey the company's value to the capital market PE - the company's value is recognized by the capital market P.
3. This round of market value management cycles is significantly different from the period of "2012-2015". This round is under the overall tone of "strict supervision" in financial supply-side reform, aiming to promote long-term healthy development of the market through continuous enhancement of the value of listed companies.
Investment recommendations: It is recommended to focus on the securities industry that will benefit from the increased market activity and the expected increase in industry concentration under mergers and acquisitions. Specific stocks to watch include: East Money, CITIC, Huatai, Guojun, CICC, and Galaxy.
Risk warning: Increased market volatility; economic downturn beyond expectations.