DBS: China International Capital Corp Ltd – Buy Target Price HK$25.00
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<News Alert> CICC (3908 HK, BUY) proposed Rights Issue Plan to raise up to Rmb27bn, -ve to share price
What’s New
CICC (3908 HK, BUY) announced a proposed Rights Issue Plan to raise up to Rmb27bn, subject to CSRC’s approval
All A and H shareholders would be allotted 3 Rights Shares for each 10 shares
The Rights Issue Price shall not be lower than 80% of the average closing price of H shares in five trading days immediately prior to the Rights Issue Announcement, which sets out the final terms
Central Huijin, the major shareholder of CICC who owns 41.87% of the shares, will subscribe all the offered right shares and would increase its shareholdings to 47.84%, if assuming 70% of the A right shares are subscribed and none of the H rights share are subscribed
The H Rights Shares would be underwritten in accordance with Rule7.19(1) of the Listing Rules, and A Rights Shares underwriting would be on best-effort basis
Proceeds raised would be primarily for enhancing balance sheet strength to support the capital needs for business development
Our View
This might not be the best timing for fundraising given the historical low valuation for China brokers, as the dilution effect would be amplified
Yet, we believe a timely Rights Issue would relieve the capital constraints and enable CICC to maintain its faster-than-peers business expansion
The Rights Issue should help lift the Capital leverage ratio from 11.7% as of 1H22, which was lowest among listed brokers, to high-teens level which is in-line with most peers
Expect near term pressure on share price given the high Rights Issue ratio (i.e. 3-to-10), but long-term outlook remains intact with more war chest on hand
