Open Source Securities: Maintains "Buy" rating for CICC (03908), CICC discloses the stock absorption plan for Dongxing and Cinda.

Open Source Securities released a research report, maintaining a "buy" rating on CICC (03908). CICC has experience in integrating CITIC Securities, and the bank is optimistic about the efficiency of the integration of Cinda and Dongxing. With significant enhancements in client resources and capital strength, the company's international brand influence is expected to continue to increase. Looking ahead, market improvements are expected to drive the recovery of the company's core businesses in investment banking and derivatives. The strong market for Hong Kong IPOs and the interest rate cuts by the Federal Reserve will benefit the company's overseas business. In addition, the synergies from mergers and acquisitions are expected to boost the company's net profit continuously. Key points from Open Source Securities: Recent events On the evening of December 17th, CICC disclosed the stock-for-stock absorption merger plan for Dongxing and Cinda. The stock resumed trading on December 18th. The bank is optimistic about the synergy effects, as the overall strength moves towards becoming a top international investment bank. This transaction involves the integration of securities licenses under the same shareholder of sovereign wealth fund companies. This merger directly increases CICC's net assets by 56 billion, as the securities industry faces restrictions on large-scale refinancing, mergers and reorganizations are the only way to supplement. Although the valuation of this merger is relatively high, the opportunity is rare. The overall purchase price for assets is 2.29 times PB, with a premium of 14% over the current price. The stock exchange prices for CICC, Dongxing, and Cinda's A-shares are 36.91, 16.14, and 19.15 yuan/share, respectively. The exchange ratio for Dongxing and CICC is 1:0.4373, while the exchange ratio for Cinda and CICC is 1:0.5188. The exchange prices correspond to CICC's A shares, Cinda, and Dongxing PB ratios of 1.83, 3.05, and 1.76 times respectively. The overall purchase price for Cinda and Dongxing is 2.29 times PB, with a 14% premium compared to the trading day before the suspension. Good prospects for synergy effects in capital, wealth management, and investment banking businesses Significant increase in net assets, improved capital allocation efficiency: As per calculations based on the 2025 third-quarter data, after the acquisition, CICC's total assets/net assets will reach 10096/1715 billion (compared to 7649/1155 billion before the acquisition), ranking fourth in terms of total assets/net assets and net assets, a significant improvement. Capital is expected to improve in terms of allocation efficiency, with leverage ratios of 12%, 29%, and 17% for CICC, Dongxing, and Cinda respectively, and a monitoring warning line of 9.6%. The expected increase in leverage and the significant synergy effects in capital businesses are clear. Wealth management: By the end of the first half of 2025, Dongxing and Cinda had 76 and 81 business branches respectively, with 15/21 branches, and by the end of 2024, Zhongjin Wealth had 213 business branches and 23 branches. With an expansion of branches, the customer base is expected to increase. Zhongjin Wealth has a leading position in buyer-side consulting, enabling services for high-net-worth clients such as the China 50 series products, which are expected to increase revenue per branch and release synergy effects. Large investment banks: Both Dongxing and Cinda's shareholders are leading players in the asset management field, with rich experience in integrating non-performing assets and client resources. After the merger, the company is expected to explore high-quality projects in asset restructuring, leverage its investment banking, research, and investment capabilities, and increase service fees and investment returns. With the strengthening of the company's investment banking team post-merger, the overall strength in comprehensive investment banking services is expected to improve, establishing a foothold in China and expanding globally. Risk Warning Progress in the merger may not meet expectations; market fluctuations may impact the company's performance.