The Last Leading Securities Firm Rushed Into A-Share CICC With 10 Billion Financing Shares

After the completion of the IPO of Zhongtai Securities, the A-share market may usher in the knocking of the last leading broker.

On the evening of May 15, CICC's A-share IPO application was officially disclosed in the prospectus after it was accepted.

This means that CICC has finally entered the queue for A-share listing after completing H-share listing, M&A of CIC Securities, additional issuance, introduction of strategic investors and other actions.

According to the arrangement, CICC plans to issue no more than 459 million shares this time, accounting for 9.50% of its total share capital after the issue. If calculated according to its current net assets per share and earnings per share, the final IPO capital raising scale of CICC may reach 10 billion.

Some insiders pointed out that for CICC, the completion of A-share listing is expected to further supplement its capital strength, which will help it make efforts in multi business fields such as brokerage network, capital intermediary and asset management; As the last unlisted head broker, the IPO sprint of CICC will further improve the overall anti risk ability of the securities industry.

The last "unlisted header"

CICC, which has officially entered the IPO review queue in the domestic market, may become the last A-share listed head broker.

According to Wind data collected by 21st Century Business Herald, CICC is the only brokerage firm that has not yet achieved IPO among the top 10 brokerage firms in 2019.

Among the top 20 brokers in terms of industry revenue over the same period, only CICC and Zhongtai have not yet been listed. It is worth mentioning that on May 18, Zhongtai Securities has taken the lead in realizing the IPO's inaugural meeting and launched the online public offering roadshow.

This also means that CICC, which has just received A-share listing application acceptance, may become the last head broker to rush A-share IPO in recent years.

"CICC is not only the last head broker of IPO in recent years, but also may become the last head broker of IPO in the history of domestic capital market. It is very difficult for many small and medium-sized securities companies or newly established securities companies to develop and expand in the case of non listing." Said a non bank financial analyst at a medium-sized securities firm.

"As a licensed institution, CICC will eventually pass the IPO review and go public, which is a highly probable event. At present, there are few cases where a licensed institution is not listed." Said an investment banker from a leading securities firm in Beijing.

According to the prospectus, CICC's operating revenue in the past three years reached 11.209 billion yuan, 12.914 billion yuan and 15.755 billion yuan respectively, and the net profit attributable to the parent company in the same period was 2.766 billion yuan, 3.492 billion yuan and 4.239 billion yuan respectively.

It is worth mentioning that CICC, whose profits continue to expand, also has a higher return on equity (ROE) in the industry.

According to the data, CICC's ROE from 2016 to 2018 was 10.43%, 10.03% and 8.85%, respectively, ranking seventh, fifth and first in the industry in the corresponding accounting year.

In 2019, CICC's ROE reached 9.37%, still ranking among the top three in the industry, second only to CSCI and Hualin Securities.

"On the one hand, the high ROE is related to the larger proportion of high marginal income businesses such as investment banking business and asset management business, and on the other hand, it is also the result of CICC's strong capital utilization rate." The above non bank financial analysts pointed out that.

In fact, CICC does have relatively higher leverage and asset liability ratio. According to the data, in 2019, CICC's asset liability ratio ranked first among all the securities companies whose annual reports have been disclosed, up to 85.93%, no less than 5 percentage points higher than that of CSCI, which ranked second in the industry, while the industry average over the same period was only 73.68%.

"It is mainly related to making full use of leverage strategy within risk control indicators." An analyst close to CICC said, "The improvement of leverage ratio and asset liability ratio can effectively improve the efficiency of capital use as a financial institution."

Or raise 10 billion yuan

With the clear expectation of A-share sprint, the possible IPO fundraising scale of CICC has also attracted market attention.

According to the prospectus, CICC's current total share capital is 4.369 billion shares, while the owner's equity is 48.532 billion yuan, or about 11.11 yuan/share of net assets per share.

Based on the average rolling P/B ratio of securities companies since 2020, 1.71 times, the issue price of CICC is about 19 yuan.

According to the simple calculation of CICC's planned issuance of no more than 459 million shares, the planned financing scale of CICC will reach 8.721 billion yuan.

Other analysts believe that, considering the current shareholder background, ROE and high efficiency of capital utilization of CICC, it is not ruled out that the valuation in the final issue pricing link is higher than the industry's general P/E ratio, leading to its final issue size exceeding 10 billion yuan.

If the scale of 10 billion yuan is reversed, CICC's IPO P/B ratio needs to reach about 1.96 times. In the view of some analysts, this expectation is not difficult to achieve.

"Considering the background of CICC's shareholders, the high ROE in the industry and the market effect brought by the continuous sinking of institutional brands, it is not difficult for CICC's PB to reach about twice. Now, the P/B ratio of CSCI is still more than 5 times." An analyst at a medium-sized securities firm in Beijing said, "On the one hand, there will be fewer and fewer new shares of front-line securities firms in the future, and there will be few new stock targets. On the other hand, CICC itself has a brand aura."

"It is not even ruled out that CICC may issue at the top level under the current price earnings ratio price limit policy." The above analysts pointed out.

According to the prospectus, CICC's earnings per share in 2019 is 0.99 yuan/share. Based on the ceiling of 23 times of the current A-share main board's P/E ratio, its offering price can reach as high as 22.77 yuan/share.

If estimated at this price, CICC's initial fundraising will reach 10.451 billion yuan.

Some investment bankers also pointed out that the actual fundraising scale of CICC still needs to consider the market situation at that time, which does not exclude that the issuer or the regulatory window will adjust its initial fundraising scale to some extent.

"Previously, some leading brokers also said that they raised more than 10 billion yuan, but many of them eventually discounted." An investment bank insurance agent in Shanghai said, "At some issuing time points, the issuer and the regulatory department may also make adjustments in the scale of issuance and fundraising according to market conditions and time points, so we should also see whether the market conditions at that time support such large order issuance."

Intended to consolidate the moat

In fact, CICC has achieved rapid expansion through capital increase and share expansion and industry merger and integration in recent years.

As early as five years ago, CICC launched the rhythm of H-share listing, and successfully raised HK $5.485 billion through H-share offering in October 2015.

Since then, CICC has also attracted Ali, Tencent and Haier to become shareholders of CICC through the initial offering, additional offering and Huijin's share transfer.

"The purpose of introducing these shareholders is not only to empower CICC with resources such as the Internet and industry, but also to enable these shareholders to enjoy the corresponding return on capital." Said the person close to CICC.

In fact, after the introduction of the above institutions as shareholders, CICC also carried out corresponding cooperation. For example, CICC and Tencent Digital (Shenzhen) Co., Ltd. plan to set up a joint venture technology company in China to provide customers with intelligent wealth management, investment advisory and other businesses.

"The company will give full play to its overall advantages, seize the opportunity of industry integration, and expand strategic cooperation with Tencent and other companies." CICC pointed out.

At the same time, CICC realized the acquisition of CIC Securities, helping Huijin Group to further integrate securities assets, which also increased the total assets of CICC from 94.109 billion yuan at the end of 2015 to 344.971 billion yuan at the end of 2020, and the shareholders' equity attributable to the parent company from 16.442 billion yuan to 48.532 billion yuan.

"If CICC was still the 'head' of investment banking business around 2015, its development in recent years is making CICC the head of the whole business chain, and its rapid development in recent years is mainly due to the merger and integration within the industry and capital increase and share expansion." The above non bank financial analyst said, "If CICC also completes its IPO in A-share this time, its A+H listing layout will play a significant role in promoting its further ranking as the industry leader."

In addition, with the implementation of the registration system reform, the arrival of investment banking dividends has given CICC, which is famous for its investment banking business, greater comparative advantages.

"The registration system has put forward higher requirements for the ability and professionalism of securities dealers in such links as issuance and investment tracking, price inquiry and underwriting, and CICC, an institution that is good at investment banking, may have a better play." The above non bank financial analysts pointed out that.

In fact, CICC's voice in the field of investment banking also makes many of its strategic initiatives tend to be forward-looking.

For example, in its 2019 annual report released at the end of March, it mentioned the layout of public REITs, and just two months later, several ministries and commissions announced the official launch of the pilot project of infrastructure REITs.

"The investment banks of CITIC, CICC and CSCI often directly participate in the discussion and solicitation of opinions on securities business innovation, and often more clearly perceive and predict the pace of the introduction of these policies." An investment banker from a leading securities firm in Shanghai pointed out that "this is also one of the important advantages of leading securities firms. They often win the first position in market innovation."