News
Huarong announced on June 24 that it plans to apply for an A-ShareOffering on the Shanghai Stock Exchange. It stated a proposed A-shareissuance size of no more than 6,895mn shares, which would represent 15%of the enlarged share base. The plan has been approved by the Board. It issubject to approvals from existing shareholders, as well as CSRC and otherrelevant regulatory authorities. The board intends to use the proceeds toreplenish working capital and develop major businesses of the company.
Analysis
We think a potential A-share listing would create an alternative channel toreplenish capital and fund growth in the medium term. The timing of anypotential listing could be influenced by the large IPO pipeline in China.
We consider the company’s current capital positon as comfortable,although we think it might face modest pressure in 2018: Huarong’s capitaladequacy ratio (CAR) was 14.75% at the parent company level at the end of2015, vs the 12.5% regulatory minimum and 16.11% at Cinda AMC. Weforecast Huaraong’s CAR will decline gradually to 13.8%/13.4% by yearends2017/2018 on the back of our assumption of 19% CAGR assetexpansion over 2015-2018E and 16% ROE on average.
Implications
We maintain our Buy rating on Huarong. Our unchanged 12-month SOTPbasedtarget price of HK$4.1 implies 1.2X 2016E P/B.
Key risks: Sharp GDP or property market slowdown, rising competitionfrom the other AMCs and financial institutions.