East Sea Securities: It is expected that the pace of securities industry consolidation will accelerate, and the pattern of "head concentration, regional integration, and characteristic differentiation" will form more quickly.

East Sea Securities released a research report, stating that Orient (600958.SH) announced on April 19th that it plans to acquire 100% equity of Shanghai Securities by issuing A-shares and paying cash. The relevant stocks have been suspended from trading since April 20th. The effectiveness and direction of the Central Financial Work Conference and the new "Nine Articles" for the construction of leading investment banks remain unchanged. This consolidation once again confirms the merger theme of "business or regional complementarity, equity consolidation within state-owned asset system". It is expected that the pace of integration of securities firms under provincial and municipal state-owned assets will accelerate, and the industry pattern of "head concentration, regional integration, and differentiated features" will accelerate. It is recommended to focus on large securities firms with strong capital and stable business operations for investment opportunities. The main views of East Sea Securities are as follows: Acceleration of integration of Shanghai state-owned securities firms to enhance the status of Shanghai as an international financial center Orient plans to purchase Shanghai Securities' 50%, 16.3%, 7.7%, 1%, and 18.74% equity holdings held by Bailing Group, Shanghai International Group Investment, Shanghai International Group, Shanghai Urban Investment Group, and Guotai Haitong respectively by issuing A-shares, and to purchase Guotai Haitong's 6.25% equity holding in Shanghai Securities by paying cash. After completion, it will achieve 100% control. Shanghai Securities is controlled by the Shanghai State-owned Assets Supervision and Administration Commission, and is under the same state-owned asset system as Orient. This merger is another key move in optimizing the layout of Shanghai's financial state-owned assets after the merger of "Guotai Haitong", with the core goal of reducing intra-regional competition, integrating dispersed resources, enhancing the overall competitiveness of local securities firms, and helping to enhance the status of Shanghai as an international financial center. Entering the top ten in the industry by total assets, greatly enhancing the competitiveness to obtain access to top investment banks In terms of total assets, by the end of 2025, Orient and Shanghai Securities will have total assets of 486.9 billion yuan and 95.8 billion yuan respectively. The static calculation shows that after the integration, Orient's total assets will increase by about 20% to nearly 600 billion yuan, and its industry ranking is expected to rise from 11th to 10th place; in terms of net assets, by the end of 2025, Orient and Shanghai Securities will have net assets of 82.7 billion yuan and 19.8 billion yuan respectively. The static calculation shows that after the integration, Orient's net assets will increase by about 24% to over 100 billion yuan, pushing its industry ranking from 12th to 11th place; in terms of net profit attributable to shareholders, by the end of 2025, Orient and Shanghai Securities will have net profits of 5.63 billion yuan and 1.32 billion yuan respectively. After the integration, the simple sum of profits will reach about 7 billion yuan, maintaining the industry ranking at the 12th place, with some gap compared to the 11th place (China Securities Co.,Ltd., 9.4 billion yuan). Regulatory authorities have proposed to promote the formation of 10 high-quality leading institutions by around 2030, and by 2035, to form 2 to 3 international competitive and market-leading investment banks and investment institutions. This consolidation is expected by the bank to significantly enhance the competitive strength to obtain access to the top investment banks of the "3+10". Complementary business depth, synergy in wealth management can be expected 1) In terms of regional resources, Orient has 170 branches nationwide, covering 31 provinces with a relatively balanced layout; while Shanghai Securities has more than 70 branches highly concentrated in Shanghai and the Yangtze River Delta region (as of the end of 2024, there were 33/21/7 branches in Shanghai/Zhejiang/Jiangsu respectively), with a strong base of regional customers. The bank predicts that after the merger, the total number of branches will increase to about 240, forming a network advantage of "national layout + regional depth cultivation", significantly improving the channel coverage density in core economic areas. 2) In terms of business competitiveness, Orient excels in wealth management, asset management (with subsidiaries such as Orient Red Asset Management and Huatai Fund), and investment banking, with strong product development and research capabilities; Shanghai Securities relies on the retail resources of its shareholder Bailing Group, with a solid foundation in brokerage business and mass customer service. The bank believes that this merger is equivalent to the strong alliance of Orient's "full-range product library" and Shanghai Securities' "regional channel penetration", which is expected to achieve customer segmentation operations and comprehensive service upgrades, combining Orient's advantages in fund management and investment with Shanghai Securities' large customer base, further expanding the scale of wealth management. In addition, the introduction of strategic shareholders such as Bailing Group and Shanghai International Group has also opened up new possibilities for future cross-industry synergy between "finance + industry". Overall, the bank believes that the merger is expected to further promote Orient's transformation and development into a comprehensive financial service provider with "strong capital, complete business system, and outstanding regional advantages". Risk warning: Significant fluctuations in the equity market affect the activity of stock trading, a decrease in investors' risk appetite hinders the market prosperity, a downturn in the macro environment affects the market fundamentals, and the strength of policy implementation is lower than expected.