Soochow Securities Co.Ltd(601555) (601555)
Event: on October 28, Soochow Securities Co.Ltd(601555) share allotment application was approved by the CSRC.
comment:
The company plans to allot 3 shares per 10 shares to all shareholders. It is expected to raise no more than 8.5 billion yuan and focus on heavy capital business. According to the company's announcement, The main investment targets of fund-raising are: 1) develop capital intermediary business (no more than 2.3 billion yuan), mainly to expand the scale of two financing, optimize the source of two financing funds, and carry out other capital intermediary business at the same time; 2) develop investment and trading business (no more than 4.5 billion yuan), which is mainly used to expand self operated investment in fixed income securities and moderately used for investment in equity securities and derivatives; 3) investment in information technology and risk control compliance (no more than 300 million yuan); 4) capital increase to wholly-owned subsidiaries (no more than 400 million yuan), including Soochow innovation capital (alternative investment) and Soochow venture capital (private equity); 5) debt repayment (no more than 1 billion yuan).
At present, the comprehensive strength ranks about 20 in the industry, and the capital strength will be significantly improved after the allotment and fund-raising. The company has implemented fixed growth twice in 2014 and 2016, and raised 5.99 billion yuan in 2020. Its capital strength has been significantly enhanced. At present, its comprehensive strength ranks about 20 in the industry. With the decline of commission rate of channel business, the intensification of industry competition and the implementation of follow-up investment system of science and innovation board, the trend of capitalization transformation of securities companies is becoming more and more obvious. Net capital has become a bottleneck restricting companies from competing for advancement and achieving strategic development goals. In addition, the current industry regulatory system takes net capital as the core, and the net capital strength determines the future development potential of securities companies Business scale and competitiveness. After the allotment and fund-raising, the company's net capital strength is expected to be significantly improved. Under the market-oriented mechanism, the competitiveness of the company is continuously improved and the business development is accelerated. 1) On October 30, the board of directors of the company passed the proposal on the market-oriented assessment system of the leading group, implemented the tenure system of the leading group, contractual management and business performance assessment, and established a market-oriented incentive and restraint mechanism to help the development of the company; 2) The allotment and capital increase will accelerate the development of investment research, wealth management, investment banking and other businesses. In April this year, the company signed a strategic cooperation with economist Ren Zeping to study the business, form a "troika" pattern of Ren Zeping, Chen Li and Ding Wentao, actively embrace the content, build an IP traffic operation system and promote the transformation of wealth management.
Investment suggestion: the company is based in Suzhou, radiates the Yangtze River Delta, and develops steadily relying on the strength of Suzhou state-owned assets + stable regional advantages. It is expected that the capital strength will be further enhanced after the allotment and fund-raising, and will benefit from the dividends from the further deepening of the reform and development of the capital market. As of December 17, Soochow Securities Co.Ltd(601555) was valued at 1.20xpb, below the 25th quantile since 2016, and the valuation was at a historical low. We are optimistic about its development prospects after further enhancement of capital strength. We expect the net profit of the company from 2021 to 2023 to be RMB 2.263/27.12/31.66 billion; The company's 2021p / B is valued at 1.4 times, corresponding to the target price of RMB 10.66, and is rated as "overweight".
Risk warning: the policy implementation is not as expected; Large fluctuations in the capital market; Roe rebounded less than expected after the allotment
