CICC A Shares Ten Billion IPO Curtain Up "New Head Broker" Nurturance Methodology

However, the capital operation of CICC has not stopped.

On the evening of February 28th, CICC announced that the board of directors of the company had decided to carry out IPO in the A share market. The number of shares to be publicly issued will not exceed 458 million shares, that is, the IPO share will not exceed 9.5% of the total share capital issued. A shares IPO is expected to impact, CICC March 2nd H-share price on the day rose to 7%, and eventually rose to 5.84%, stable at HK $15.

Since 2015, CICC has completed a series of capital operations such as H-share listing, introducing strategic investors and acquiring CIC securities, and this sprint A share IPO will become another continuation of its capital operation in recent years.

It is worth mentioning that CICC has been known for its investment banking business in the past. In the view of the industry, the net capital strength of CICC will be closer to the first tier of the industry after the completion of the merger and listing fundraising, and it is expected to promote it to become a comprehensive securities broker in the real sense.

The industry's expected A share IPO was finally put on the agenda by CICC. - Gan Jun photo

Tens of billions of fundraising soon

The industry's expected A share IPO was finally put on the agenda by CICC.

According to the announcement of CICC, it is proposed that the shares issued by the Shanghai Stock Exchange IPO will not exceed 458 million shares, accounting for no more than 9.5% of the total share capital issued.

If we refer to the closing price of the 13.63 yuan in March 2nd, the CICC will only raise 6 billion 243 million yuan in raising funds. But in view of the higher valuation characteristics of the A share market, or the size of the CIC's fund-raising, it will impact billions of dollars.

As of the first three quarters of 2019, CIC's earnings per share were 0.74 yuan. According to the predicted median value calculated by the sellers in Renminbi, CIC's earnings per share in 2019 are expected to reach 1 yuan / share.

This means that if the price limit policy of the motherboard IPO is still maintained for a period of time after the implementation of the new securities law, and according to the calculation of the 23 times earnings ratio, CICC intends to raise 458 million shares of the collected funds for about 10 billion 525 million yuan.

Although the new securities law has been put into effect, the 23 times price earnings ratio limit of the motherboard IPO may still be maintained for a period of time. However, CICC will need a time to declare from A share IPO and then to issue. If we can break the 23 times price earnings ratio ceiling, we won't rule out that CICC will raise more capital. An investment bank close to CICC said.

According to the index of the securities company of China Securities, as of March 2nd, the average rolling price earnings ratio of the industry has reached 29.3 times. If the valuation price of CICC is estimated by this valuation, the scale of the CIC can be as high as 13 billion 419 million yuan.

"Since the securities companies are the governing bodies, considering the market affordability and so on, there will still be a certain price guidance for the approximate rate, and there may be some restrictions on the scale of the issuance. However, the scale of the scale up to tens of billions should not be a big problem." The aforementioned investment bankers said.

Because CICC has been preparing for A share IPO research for a long time, some analysts expect CIC's IPO progress to proceed smoothly in a faster manner.

"CICC itself is Huijin background, at the same time, there are many star shareholders, A shares IPO is originally established strategy, so the preparatory stage is also more sufficient. At the same time, CICC itself is also a governing body. It participates in policy discussions extensively in many capital market reforms, and helps regulators to make suggestions. The probability of great probability will be very smooth. "If it goes smoothly, CICC is likely to achieve IPO in the fourth quarter of this year or in the first quarter of next year," said a non silver financial analyst in a medium-sized brokerage in Beijing.

"New head" is in sight

The IPO sprint facing the A share market is just a continuation of CIC's recent capital operation.

After completing the H-share listing in 2015, CICC took the platform of mergers and acquisitions, issuance, rights issue and attracting strategic investors.

At the end of 2016, CICC launched the integration of Huijin's securities assets, priced at 17 billion 600 million yuan and completed the acquisition of CIC securities, and transformed it into "CICC fortune".

In 2018, CICC issued 207 million shares of H-shares to Tencent, which raised HK $2 billion 864 million. In June of the same year, the company received 399 million shares of CICC from the Central Huijin office. A year later, Alibaba also made a stake in CICC and held 203 million shares.

Up to now, Haier, Tencent and Ali have reached 9.51%, 4.95% and 4.84% respectively.

"The combination of these industrial capitals may accelerate the layout and advantages of CICC in Internet securities, intelligent investment, integration and other aspects." The former close to CICC's investment bankers said.

In October 2019, CICC sold HK $2 billion 530 million by offering a discount of 176 million H-shares to further expand its capital strength.

"In recent years, the speed of capital operation in CICC has been greatly related to the completion of H-share listing. If CIC's further listing in A shares, it may accelerate its subsequent capital operation and capital increase and share expansion." The above non silver financial analysts pointed out.

CICC said that the financing of the A share IPO will be used to increase company capital and supplement working capital to support the development of domestic and foreign businesses.

5 years ago, in the H-share IPO, CICC's net subscription fund was only HK $5 billion 485 million. If the scale of the fund-raising reached tens of billions, it would obviously change the capital strength of CICC.

In the industry view, after completing the A share IPO, CICC hopes to further develop into a comprehensive head broker.

"In the past, CICC was the head, and more emphasis on the investment business of CICC is the head, but after continuous capital raising and expansion and integration of the wealth of CICC, the business chain of CICC brokers, two financial intermediaries and capital intermediaries may expand further." Those close to CICC's investment bankers pointed out that "this means that CICC may become a truly comprehensive head broker."

From the perspective of net capital, CICC has a distance from its head position. The latest net capital data as of 2018 showed that the net capital of CICC was 24 billion 577 million yuan. In the same period or in 2019, A shares could be ranked fourteenth in the listed securities brokerage companies. If the additional capital is 10 billion to 15 billion, the highest level will be close to the level of Guoxin Securities.

From the point of view of net assets, so far as the end of the three quarter of 2019, the net assets of CICC were 45 billion 196 million yuan, ranking fourteenth in A shares, assuming that the net assets of CICC could grow further from 10 billion yuan to 15 billion yuan, and it is expected to reach 55 billion to 60 billion magnitude, which is close to that of CITIC.

High expansion capability

It is worth mentioning that, if viewed from the perspective of total assets, the total assets of CICC as at the end of the three quarter of 2019 were 322 billion 901 million yuan, ranking the top 10 among A shares, and it was already a head broker.

In the backdrop of net capital and net assets ranking, its total assets rank in the front. Obviously, it is related to the higher debt ratio of CICC.

Data show that as at the end of the three quarter of 2019, CIC's assets and liabilities ratio was as high as 86%, not only exceeding all A share listed brokerages, but also the shadow shares of broker companies such as PetroChina capital and Jinlong share.

"In recent years, the securities innovation business represented by capital intermediary business is constantly opening up, maintaining a higher debt management and enjoying the bonus of industry development." Aforementioned non bank financial analysts said, "CICC raise debt rate to a certain extent may also be to raise the level of ROE, so whether it is a share price or IPO, it has a certain role."

"Whether the new third board market making business or the Chuang Chuang board with the investment, all need more investment from securities companies. At the same time, the two derivatives and other derivatives business also put forward higher requirements for the liabilities of the securities companies." The analyst further pointed out.

In the view of the seller, in the development period of the securities industry, the high debt utilization ability is also conducive to ensuring the competitive advantage of the market.

"The securities industry is in the period of development opportunities, and the company's ability to use its assets and liabilities is outstanding. A share IPO will open up the company's A+H financing channels, which is conducive to further expansion of capital market share and long-term competitive advantage." Guotai Junan Securities said.

The higher ability to expand the list does raise the ROE level of CICC in recent years. Data show that in 2017, 2018 and the first three quarters of 2019, the ROE of CICC was 7.38%, 8.14% and 8.58% respectively. In the case of not counting the shadow shares of the brokerage firms, the CIC ROE's ranking in the A share brokers increased from thirteenth in 2017 to first and fourth at the end of 2018 and 2019 three.

The higher ROE level is also related to the advantages of CICC's investment banking business, such as the strong anti cyclical capability.

For example, in 2018, the ROE of CICC was as high as 8.85%, sitting on the top of the comprehensive securities companies, and also being good at CITIC investment securities, which was also good at investment banking. The ROE of that year ranked second among the 10 billion revenue and above brokerages, but it still differs by 2.09 percentage points from CICC.

"Investment banking is less affected by the market downturn, and there are also gains from information management, equity direct investment and other business operations, all of which enable CICC to have stronger anti cyclical capabilities." The above non bank analysts pointed out that "after sprinting A shares IPO, this advantage may be further strengthened."