Business Development Strategy & Non-Banking: The rebound of securities firms and the opening of a new round of main uptrend in the market are highly probable events.

The joint report issued by the investment strategy and non-banking team stated that each round of mergers and acquisitions in the securities industry is closely related to the support cycle of the capital market; the introduction of each round of capital market policies is aimed at solving the structural contradictions encountered by the securities industry in the "old era" and adapting to the new demands of the "new era" securities industry. With the favorable catalyst of each policy dividend, securities industry reform, and the momentum of securities mergers and acquisitions, the rebound of securities firms and the opening of a new round of bull market are also highly likely events. Looking back at history, from the "six suggestions" in the 1990s to revitalize the market, operate separately, and resolve mixed-ownership risks, to the first version of the "Nine National Rules" issued in 2004, exposing industry irregularities and starting the era of "comprehensive governance"; in 2008, the control of "one participation, one controlling" to control inter-industry competition and reshape the industry landscape, and then in 2014, the second version of the "Nine National Rules" was released, with innovation becoming the key word for industry development. Securities firms "take what they need" and a wave of market-oriented mergers and acquisitions is set off. Now, under the goal of becoming a financial powerhouse, the third version of the "Nine National Rules" has been released, with the "functional" role taking precedence, marking the start of another round of mergers and acquisitions cycle for the industry. The impact of securities mergers and acquisitions is multifaceted. In terms of industry structure, with the increasing proportion of "marketization" in the motives for mergers and acquisitions, the industry is gradually moving from "diversity" to "strong head" and "differentiated middle development". In terms of business development, the beginning is always accompanied by the accumulation of business risks and industry falling into operational difficulties, followed by regulatory clarification of business norms, entering the period of rectification, and the industry structure entering the reshuffling stage. Later, innovative business emerges in the soil of abiding by regulations. This upward spiral process is vividly reflected in the development of margin arrangement system. Taking CITIC SEC as an example, it expanded through low-cost acquisitions during the bear market, acquiring Jintong, Wantong, and Guangzhou Securities, building a strong brokerage business network; and acquired Lianhe Securities during the global financial crisis, expanding its overseas business. Multiple rounds of mergers and acquisitions have strengthened business, efficiently integrated and synergistically developed, making CITIC SEC the king of the securities industry that spans cycles. A micro perspective on "Guojun + Haitong". As for the necessity and feasibility of mergers and acquisitions, "cultivating first-class investment banks and investment institutions" and promoting the construction of an internationally competitive financial center have become the regulatory support for Guojun and Haitong. Weak industry prosperity reduces external expansion costs and benefits integration and advancement under Shanghai state-owned assets. As for the focus of mergers and acquisitions, the transaction plan has been announced, and there are still difficulties in personnel integration, license destinations, asset risk disposal, and the merger of Hong Kong subsidiaries, which not only involve the quality of new business entities after the merger, but also provide examples and templates for subsequent top securities firms mergers and acquisitions. In terms of the financial situation of the new business entity, the balance sheet is stronger and more balanced, continuing the prudent and steady risk control philosophy of Guojun, and the space for new business entity asset allocation is expected to be fully opened; in specific businesses, brokerage, investment banking, and credit are expected to surpass CITIC, and asset management/ proprietary trading rankings are significantly improved, posing challenges to CITIC. Reviewing the market situation, each wave of securities mergers has been accompanied by market rebounds/rallies. In terms of style performance, within 1 month and 3 months after each round of mergers and acquisitions, small-cap style stands out prominently. Looking at industry performance, the non-banking financial industry does not always take the lead in each round of mergers and acquisitions waves, only in the 2009 and 2014 rounds of mergers and acquisitions, with the highest increase in 2009. Taking the example of the merger and restructuring of Shenwan Hongyuan and Hongyuan Securities, we found that the trading party will achieve a significant excess return at three time points: after the resumption of trading upon announcement of the restructuring, when the trading party is about to be delisted, and when the newly established entity is listed. During the suspension of trading by the trading party, the non-banking financial sector shows a significant increase. Mergers and acquisitions outlook. The completed or ongoing cases of securities mergers and acquisitions have certain commonalities, that is, the trading parties are mostly controlled by the same entity; state-owned assets divest securities companies to meet regulatory requirements, focus resources and refocus on the main business, and private enterprises divest securities company equity to relieve operating pressure. Exploring potential merger and acquisition stocks around the following ideas. 1) Two or more securities firms under the same controller: CICC and China Galaxy under the sovereign wealth fund, Orient and Shanghai Securities under the Shanghai state-owned assets, Industrial and Huafu Securities under the Fujian group, Guoyuan and Huaan under the Anhui group. 2) State-owned assets divest non-core equity projects, if the divested projects have a relative advantage in asset management and investment banking, the probability of being acquired will increase significantly: China Great Wall, Open Source Securities, etc. Risk warning. Integration falls short of expectations; market correction exceeds expectations; existing policy effects are less than expected, and incremental policy attitudes turn and marginally tighten; liquidity tightens more than expected; continuous decline in business rates, etc.