News
Huatai proposed a private placement of new A-share last week. The companyplanned to issue no more than 1,088.7mn A-share to <10 specific targetinvestors with estimated proceeds of Further expansion of credit business: Expansion of fixed income investment: Capital injection in domestic wholly-owned subsidiaries: Expansion of overseas business: Early precaution. The management believe tightening regulation andfinancial deleveraging will sustain for some time, and the deleveraging inreal economy will have much deeper impact on the financial industry. It isbeneficial to raise capital now and make appropriate allocationIn terms of target investors, the company hopes to attract strategic investorswhich could benefit its transformation to wealth management business model.
DB view
Although it came as a surprise, we believe the placement would be beneficialfor Huatai in terms of capital enhancement and business expansion. It shouldalso support its proactive transformation to wealth management and potentialacquisitions of overseas assets which could enhance its competitive position.
Based on our estimates, assuming issuance price at 5-10% discount to today’sclosing, the ~15% new issuance will lower 2017E EPS by ~11%, but will boostBVPS by ~4-5% and our target price by ~3-4%. Huatai H-share is currentlytrading at 1.2x 2017E P/B （vs. historical avg of 1.3x）， which has accounted forthe weak market activities in 2017E. Reiterate Buy and Top Picks.
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