Sichuan Major Decision Investment Consulting Summary: China is currently in a positive environment characterized by abundant liquidity, gradually apparent signals of economic recovery, and continuous and strong policy support.

Against this backdrop, the securities industry is expected to break free from past difficulties and achieve fundamental transformation and revival.

1.

A series of policy "combination punches" are expected to warm up the capital market.

Event: On September 24, the State Council Information Office held a press conference where the heads of the three major financial regulatory commissions introduced the situation of financial support for high-quality economic development and announced a series of policies.

A multi-pronged approach to support high-quality development sends a clear positive signal.

This financial policy combination covers three core directions: monetary, real estate, and capital market policies.

The implementation of reserve requirement ratio cuts and interest rate reductions, along with a series of combination punches to support the real estate and stock markets, will create a favorable monetary and financial environment for stable economic growth and high-quality development.

This will help improve liquidity expectations, boost market confidence, and enhance risk appetite.

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Innovative tools are expected to provide additional liquidity, and it is worth looking forward to the introduction of policies such as medium and long-term capital entering the market, promoting mergers and acquisitions, and guiding the market value management of listed companies.

Capital market policies mainly include: 1) The central bank will create a swap facility for securities, funds, and insurance companies, allowing institutions to "swap for liquidity" from the central bank, with an initial scale of 500 billion yuan, which can be expanded in the future depending on the situation.

This tool is expected to enhance the ability of non-bank institutions to leverage and increase their holdings of stocks, bringing more liquidity to the market.

The rules for the swap facility have not yet been introduced, and subsequent institutional holdings will focus on the methods, sources, leverage limits, and participation requirements and willingness of the institutions; 2) A special re-lending facility for stock buybacks and increases will be created to provide loan support for listed companies and shareholders to repurchase and increase their holdings of shares, with an initial scale of 300 billion yuan, which can be expanded in the future depending on the situation.

This tool will help guide listed companies to strengthen market value management and enhance market investment value and stability; 3) The village plans to issue "Guiding Opinions on Promoting Medium and Long-term Capital into the Market," supporting the Central Huijin Investment Ltd. to increase its holdings in the capital market and further improve the policy toolkit; 4) The village will issue "Opinions on Deepening the Reform of the Market for Mergers and Acquisitions of Listed Companies" and formulate "Guidelines for Market Value Management of Listed Companies."

At the same time, more exemplary cases will be implemented in areas such as representative litigation and advance compensation, and a series of policies are expected to further deepen the reform of the capital market and promote high-quality development of the capital market.

The three major financial regulatory commissions support high-quality development in a matrix-style combination punch, focusing on "real money and silver" financial support and "root and foundation" institutional construction, and concentrating on policy implementation in the three major areas of the real economy, real estate market, and capital market.

This round of policies is forward-looking and synergistic, exceeding market expectations, and is expected to continue to promote the recovery and improvement of the real economy and the capital market.

2.

Under the construction of China's characteristic valuation system, the valuation of the securities sector is expected to increase.

Against the background of the construction of China's characteristic valuation system, the valuation of the securities sector is expected to achieve significant improvement.

This system focuses on better reflecting the true value of China's capital market and promoting the healthy development of the market.

The securities industry, as an important hub of the capital market, its valuation level is directly related to the stability and attractiveness of the market.

With the gradual improvement of the valuation system, the value of the securities sector will be more reasonably reflected.

Driven by policy support and market reforms, securities companies are expected to further enhance their profitability by optimizing their business structure, improving service quality, and innovation capabilities.

This will help boost investor confidence, attract more capital into the securities sector, and thus promote the increase in its valuation level.

In summary, under the promotion of the construction of China's characteristic valuation system, the securities sector is expected to usher in new development opportunities and achieve a steady rise in valuation.

3.

Guojun absorbs and merges Haitong, and the industry's mergers and acquisitions accelerate.

On September 5, Guotai Junan and Haitong Securities issued an announcement that Guotai Junan plans to absorb and merge Haitong Securities by exchanging shares with all AH shareholders of Haitong Securities and issuing A-shares to raise supporting funds, with an expected suspension period not exceeding 25 trading days.

This merger is the first integration case between top securities firms after the regulatory authorities have repeatedly mentioned encouraging mergers and acquisitions and building world-class investment banks.

It is also the largest-scale case of absorption and merger between securities companies and listed companies in the AH dual market in history.

If the transaction is completed, the new company's total assets, net assets, and net capital are expected to become the first in the industry, with revenue and net profit attributable to the parent company second only to CITIC as the second in the industry.

The asset scale is moving towards the first place, but the synergy effect remains to be observed.

After the merger of Guojun and Haitong, the total assets, net assets, and net capital are 1.6 trillion yuan, 331.1 billion yuan, and 177.2 billion yuan, respectively, surpassing CITIC to become the first in the industry; the revenue and net profit attributable to the parent company are 25.9 billion yuan and 6 billion yuan, respectively, second only to CITIC to become the second in the industry (all for the first half of 2024).

In addition, Guojun and Haitong have business complementarity and synergy in many dimensions, such as both being controlled by Shanghai state-owned shareholders, which is conducive to resource synergy, the number of business departments after the merger is 651, becoming the first in the industry, investment banking income and net interest income both reach the first, and the asset management income ranking is further improved to the third.

However, Haitong has been under pressure in recent years, with revenue/net profit attributable to the parent company in the first half of 2024 being 8.9 billion yuan/1 billion yuan, a year-on-year decrease of 48%/75%, and Haitong International suffered a huge loss of 2.9 billion Hong Kong dollars.

The final effect needs to be realized by the ability of synergy integration, and whether it can achieve a 1+1>2 effect remains to be observed.

The industry pattern is expected to further concentrate on the top, and mergers and acquisitions under the same control system may accelerate.

This year, the regulatory authorities have repeatedly mentioned encouraging industry mergers and acquisitions and building first-class investment banks.

Mergers and acquisitions involve many issues such as ownership conversion, organizational structure adjustment, integration of management and employees, and coordination of compensation incentive systems.

Securities firms under the same control system are more feasible.

We believe that this integration may promote the acceleration of the industry's supply-side reform and is expected to usher in a new round of mergers and acquisitions, and the trend of survival of the fittest is becoming more and more obvious.

Medium and large securities firms with high-quality shareholder resources, strong comprehensive strength, excellent management teams, and innovative breakthrough capabilities are expected to gradually stand out and achieve scale effects and synergy effects through external expansion.

Overall, this integration is expected to effectively catalyze short-term market sentiment and expectations for future sector mergers and integration.

4.

Investment logic of the securities sector and individual stock sorting.

China is currently in a positive environment characterized by abundant liquidity, gradually apparent signals of economic recovery, and continuous and strong policy support.

Against this backdrop, the securities industry is expected to break free from past difficulties and achieve fundamental transformation and revival.

As an important bridge connecting investors, the capital market, and the real economy, securities companies have a strong beta attribute, and all their businesses are affected by factors such as the macroeconomic environment, policies, and market conditions.

In the short term, the securities sector benefits from the continuous growth ability of performance under the expectation of a good market and active trading, and the resonance of low valuation and high cost performance, and it is optimistic about the valuation repair opportunity of the securities sector.

In the medium and long term, the comprehensive registration system will be implemented, and the trend of residents' funds migration is inevitable.

The bonus of the long-term development and growth of the capital market continues, and the securities sector will continue to benefit from the development and growth of the direct financing system.

Top securities with excellent compliance and risk control capabilities and long-term development capabilities are expected to benefit first.

Related stocks: CITIC Securities, Orient Wealth, GF Securities, Orient Securities, China Merchants Securities, Great Wall Securities, CITIC Construction Investment, CICC, etc.