Guotai Haitong: Accelerating the construction of first-class investment banking, optimistic about the valuation repair of the securities sector.

Guotai Haitong released a research report stating that supply-side reform remains an important change in the securities industry in the medium to long term. They believe that due to factors such as trading, the valuation of the securities sector is significantly discounted compared to its fundamentals (current PB ratio of 1.40x, with PB percentile 57%/40% in the last 5/10 years), and they expect the sector's valuation to be restored under the catalyst of the event, thus they continue to recommend holding. They recommend the stock China Galaxy (06881.601881.SH), as well as suggest increasing holdings in related targets as they anticipate an accelerated industry merger process. Event: On November 19th, CICC (03908) announced a major asset restructuring plan, intending to simultaneously absorb and merge with Cinda (601059.SH) and Dongxing (601198.SH). It is expected that the trading halt will not exceed 25 trading days. Key points from Guotai Haitong are as follows: The integration of this time is based on the consolidation of licenses under the China Investment Corporation (CIC) system and the direction of building a first-class investment bank. 1) Due to the need to improve the management system of state-owned financial capital, AMC such as CHINA CINDA and China Eastern will change their controlling shareholders to the central CIC within the year. Therefore, there are 7 brokerage licenses under the CIC system (including China Galaxy, CICC, Shenwan Hongyuan Group, EB SECURITIES, Dongxing, Cinda, and CCGR). The market has been paying more attention to the possibility of license consolidation within the CIC system. 2) It is expected that the integration will be driven by the goal of improving quality and efficiency and building a first-class investment bank. The merger will significantly enhance comprehensive strength, and synergy effects are expected to be mainly reflected in expanding customer base and improving asset efficiency. 1) Based on the data from Q3 2025, CICC, Dongxing, and Cinda rank 8th, 25th, and 26th in terms of comprehensive strength, respectively. It is expected that the integration will elevate them to 3rd-4th place, significantly enhancing their comprehensive strength. After the merger, net revenue, net profit attributable to equity holders, total assets, and net assets will rank 3rd, 6th, 4th, and 4th in the industry, respectively. 2) In terms of specific business segments, there is a potential for comprehensive enhancement. Self-operated revenue is expected to rise to 3rd place, and capital utilization efficiency is expected to further improve after the merger (CICC leverage ratio of 5.4x vs Dongxing 3.2x, Cinda 3.8x); brokerage business is expected to expand the customer base and improve particularly in regions such as Fujian and Liaoning (of Dongxing's 77 branches, 34 are located in Fujian, and of Cinda's 82 branches, 33 are in Liaoning).