H股全流通,轻微利好相关股份及港交所

CSRC has officially implemented H-share full circulation programme on 15 Nov, with 159 stocks eligible by our estimate. We estimate that the programme could increase tradable share for those stocks by 239% on average, and the total tradable market cap on HKEx by 5.2%. We believe those eligible stocks would enjoy slightly higher liquidity and valuation after full circulation, but an increase in tradable shares might lead to selling pressure when valuations become rich in bull markets. HKEx (388 HK, NR) and China brokers would benefit from a slight increase in trading volume.

 

  • For eligible stocks: increase in liquidity may boost valuation slightly. There are 159 H-share-only stocks eligible for full circulation. In theory, the more shares are floated, the more will be traded. When liquidity improves, a stock’s valuation may be lifted too, especially for those currently thinly traded. In reality, by how much turnover will increase depends on several factors, among which the crucial one is how many shares will the controlling shareholder transfer to third parties. Given that many of those 159 H-share-only stocks’ valuations are undemanding, the controlling shareholders are probably not willing to reduce their holdings at such levels. If that is the case, full conversion alone would not help much on liquidity.

 

  • Full circulation alone is not a guarantee of higher volume. We have studied the trading volumes of those two stocks which participated in H-share full circulation pilot project in 2018. While Weigao’s (1066 HK, NR) trading volume increased by 47% after full circulation, that of AviChina (2357 HK, NR) dropped by 23%. It shows that full conversion alone would not significantly increase trading volume without the controlling shareholder transferring some shares to third party.

 

  • Increase in supply of shares would lead to higher selling pressure? As the controlling shareholders would probably be unwilling to sell stakes at the current valuations, we do not expect significant selling pressure after full circulation as long as the valuation stays at current level. In longer term, we do expect higher selling pressure during exuberant bull markets.

 

  • Impact on HKEx and China brokers. For HKEx, H-shares full circulation will increase the tradable market capitalization on HKEx, thereby boost market turnover, but the positive impact on financial performance will be limited. Under very bull case, the incremental tradable market cap will lift HKEx’s FY20E net profit by only less than 1% (see details in Figure 4), based on our estimate. For China brokers, especially those with HK operating subsidiaries, will likely benefit from the full circulation of H-shares, too. Domestic shareholders have to place sell orders through them, which may marginally increase the trading volume, or possibly SPL-related business, of such brokers. Again, we won’t expect this impact to be meaningful.

 

  • Impact on broad market and benchmark indexes: minimal. Among those 159 H-share-only stocks, very few are constituents of HSI / HSCEI. Even if their volume and valuation are boosted marginally by H-share full conversion, the positive impact on the broad market would be negligible.
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