Morgan Stanley: Maintains CICC (03908) "Overweight" rating, target price HK$32.8

Morgan Stanley issued a research report stating that CICC's (03908) share-swap absorption merger with Dongxing and Cinda completed settlement on October 26, and the newly issued free-float shares will become tradable from October 29; the company has announced a first interim dividend of RMB0.26 per share, implying a payout ratio rising to 25%, in line with the bank's base-case expectation. The bank maintains its "Overweight" rating on CICC with a target price of HK$32.8. The bank expects that as merger integration progresses, CICC's payout ratio will gradually rise to above 30% in the future, and achieve 13% growth in dividend per share in the first half of 2026. The bank noted that a higher payout ratio will help offset the EPS dilution effect brought by the merger. The report pointed out that the bank holds a positive view on the synergies after the merger and expects further potential to be unlocked over the next 12 months. The merged company's net capital is expected to double, thereby benefiting capital-intensive equity trading, derivatives and prime brokerage services. Previously, CICC had announced an injection of RMB4.2 billion into its Hong Kong subsidiary. Management stated that, as part of the merger, the company is seeking to increase high-margin loan balances and net interest income (depending on customer demand). The number of retail clients is expected to increase by about 50%, and branch coverage will expand by more than 80%. Management also noted that if the wealth management business efficiency of Dongxing and Cinda after the merger can be raised to a level comparable to that of CICC, it is expected to bring potential revenue of RMB1.5 billion to RMB2 billion, and wealth management integration work has been underway for several months. On risks, the report sees them as including a slower-than-expected macroeconomic recovery, affecting stock market performance and investors' risk appetite, as well as cross-border business being dragged down by offshore market volatility. Upside risks include a faster-than-expected macro recovery, de-escalation of geopolitical risks, and stronger-than-expected IPO and follow-on financing activity.