外文报告：GS-CITIC Securities(600030.SS)CLSA acquisition： longterm strategic move key is execution／return-120723

July 23, 2012
COMMENT
CITIC Securities (600030.SS) Rmb12.82
Neutral News
Equity Research
CLSA acquisition: long-term strategic move; key is execution/return
News
CITIC Securities (CS) announced it had reached an agreement with the
shareholders of CLSA to: 1) acquire a 19.9% stake in CLSA, including its
US, Japan and other Asian operations for US$310mn cash; and 2) be
granted a put option to purchase the remaining 80.1% for roughly
US$942mn cash, under certain conditions, including the employees’
representative institution CA-CIB delivering its opinion over the 80.1%
stake sale, and necessary approvals from corporate, regulators, and
shareholders. The put option can be extended to March 31, 2013, and CS
plans to finish the acquisition by June 2013. CS terminated the previous
proposal to acquire a 19.9% stake in CA Cheuvreux.
Analysis
Given CLSA’s strong equity platform and its market share in cash equities,
which is one of the highest of investment banks in Asia, we see potential
revenue synergies (eg, more overseas IPOs) and believe it could better
serve CS/CLSA’s overseas/ domestic clients by leveraging both strong
equity franchises. However, we see challenges for integration, including: 1)
CS’ ability to retain employees and customers of CLSA, and to maintain
CLSA’s current strong and unique equity franchise as an independent
broker amid increasing competition in Asia, and 2) whether CS can
successfully integrate CLSA given the culture difference. Financially, given
the all cash transaction, we calculate CSLA would only need to post a
US$30mn annual profit to make the transaction P/E-accretive for CS in the
medium-term, assuming 3% pre-tax costs for the US$1.25bn cash
investment. Based on the announcement, which states that CLSA had a
US$10mn loss attributable to shareholders and revenue of US$739mn in
FY11, and roughly US$562mn net assets, the proposed acquisition would
value CLSA at a 2011 P/B of about 2X. The total cash consideration of
US$1.25bn is around 9% of CS’s equity and 25% of its 1Q12 cash position.
Implications
Our Neutral rating and target price for CS are unchanged.
INVESTMENT LIST MEMBERSHIP
Neutral


Coverage View: Neutral

Ning Ma
+86(10)6627-3063 ning.ma@http://wendang.chazidian.com Beijing Gao Hua Securities Company Limited
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Bowei Cheng
+86(10)6627-3095 bowei.cheng@http://wendang.chazidian.com Beijing Gao Hua Securities Company Limited






The Goldman Sachs Group, Inc. Global Investment Research