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Shanghai Composite

Citic Securities 600030

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I felt this baby (600030.SS) was being thrown out of bath tub when the Shanghai Composite Index dropped from 4300 to 3600, amid the raise of stamp tax. Logic here was the raise of stamp tax will reduce stock trading, which will reduce Citic’s business from trading side.  

Citic Securities

Well, it’s a bit too early to tell the effect of stamp tax, although in recent days the volume did not drop because so many panic sellings. That being side, CS is one of only two public traded brokage firms (the other is Hong Yuan Securities, which is not in CS’s league). CS derive a lot more money from institutional sales and IPOs.

To make things more interesting, CS is going to do a secondary offering by offering 350 m new shares. I felt this one is much better than her big brother, Citic Bank.

Appendix I:

Earnings:

2006: CNY 0.80 (2005 CNY 0.16)

2007: Q1 CNY 0.42, full year est CNY 2.00 (note Q1 is lower because of the bonus expense for Chinese New Year).

2008: CNY 2.66

2009: CNY 3.30

Source: Sina Finance, Yahoo Finance

Appendix II (WSJ article June 6)

Citic Could Raise $2.67 Billion
In Proposed New-Share Offering

By JANE LANHEE LEE

SHANGHAI — Citic Securities Co., China’s largest brokerage firm in terms of net profit, said its board has approved a plan to sell as many as 350 million new Class A shares to the public to increase the firm’s capital and expand its business.

If the full number is issued, the new shares would represent about 10.6% of the expanded capital, as there were 2.98 billion shares outstanding at the end of March. Based on yesterday’s share price, the offering could be valued at around $2.67 billion.

The brokerage firm said the pricing of the shares wouldn’t be lower than the moving average of the share price in the 20 trading sessions before the additional share-issue prospectus is issued, or the moving average the day prior to the issue of the prospectus.

The shares of the brokerage firm, listed on the Shanghai Stock Exchange, rose 8.2% to close at 58.48 yuan ($7.65) yesterday. The shares had been suspended for the first hour of trading after the announcement.

The share-issue plan needs shareholder approval, Citic Securities said.

The brokerage firm also said its board has approved a plan to pay as much as 400 million yuan to buy Southwest Securities Co.’s 35.7% stake in fund-management company China Asset Management Co.

Citic Securities in its 2006 annual report issued in March said it had signed an agreement to take over Beijing Securities Co.’s 20% stake in China Asset Management, which would bring its stake in the fund-management company to 60.7%.

China Sci-tech Securities Co. owns the remaining 3.6% of China Asset Management.

Write to Jane Lanhee Lee at jane.lee@dowjones.com

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