Matters: On the evening of October 24, Huaxin Co., Ltd. released its third quarter performance report. The company achieved operating income of 450 million yuan in the first three quarters, a year-on-year increase of 32.7%; net profit of 140 million yuan, a year-on-year decrease of 22.9%; corresponding basic earnings per share was 0.273 yuan; in addition, the company announced that the preliminary plan for this major asset restructuring was to set aside some of the company's real estate assets and liabilities, inject equity into Huaxin Securities, and implement supporting capital raising. The company's shares have continued to be suspended for no more than 1 month since October 25, 2016. Key points 1. Net profit for the first three quarters fell 23% year on year, and low land costs promoted gross margin continued to rise at a high level. Operating income for the first half of the year was 450 million yuan, up 33% year on year; only 45 million yuan was settled in the third quarter; net profit was 140 million yuan, down 23% year on year, but it has already increased 9% from last year's full year; earnings per share were 0.273 yuan; gross margin increased gross margin by 2.3 and 22.8 percentage points, respectively. Low land costs drove a sharp rise in land tax, driving tax and operating taxes and sales taxes and the like Additional revenue increased by 289% year-on-year, accounting for operating income from 6.6% the previous year to 19.3%; the three expense ratios increased to 26.6% from 18.1% last year, due to the increase in management expenses and financial expenses due to Oren's merger and the cessation of interest capitalization on some projects, respectively. At the end of the reporting period, the debt ratio and net debt ratio fell to 53% and 33% respectively, far below the industry average. 2. The major restructuring clearly injected Huaxin Securities's equity, estimated the valuation space after the restructuring, or greatly increased the company's trading and entered the restructuring process since August 25. Currently, it is clear that the preliminary plan is to set aside some of the company's real estate assets and liabilities, inject Huaxin Securities shares, and implement supporting funds to raise funds. According to an analysis of public information, the actual controllers, Electromechanical Group, the brother company Feilo Audio, and the company hold 66%, 24%, and 8% of Huaxin Securities, respectively, and the total instrumentation department holds 98% of the shares, so it is expected that after the restructuring, Huaxin Securities will go public almost as a whole. Since the current overall securities asset acquisition plan and supporting capital raising plan have all been announced, it is still impossible to estimate the valuation of the company after the restructuring. However, compared with the current three smallest brokerage firms in the securities industry, the market capitalization of Northeast Securities, Guohai Securities, and Baoshuo (Huachuang Securities) is as high as 303, 304, and 29.7 billion yuan, respectively, so it is expected that the valuation space after the restructuring may increase dramatically. 3. The company's land storage is of high quality, with a valuation of 5.5 to 6.6 billion yuan, and some of the assets can be returned to the company holding shares of 1 billion square meters of cash (developed 890,000 square meters, holding 130,000 square meters). Most of the assets are located in Shanghai. The company acquired land by undertaking instrumentation and electrical industrial land and equity acquisitions. The cost of land acquisition was low. In addition, land acquisition costs were low, and the gross development margin exceeded 60%. We used the net profit discount method to value the properties held by the net profit discount method, the cash flow discount method, and the rental return rate method, respectively. 100 million yuan. However, in this restructuring plan, it is clear that some real estate assets and liabilities will be set aside, and it is expected that billions of dollars in cash can be returned to support the development of the securities business. 4. Investment suggestions: Huaxin Securities has taken the stage, and valuation space has opened up. It is reiterated that the rating Huaxin shares has been suspended since August 25 and entered the restructuring process. Currently, it is clear that the initial plan is to place out some of the company's real estate assets and liabilities and inject Huaxin Securities shares; currently, after the restructuring, Huaxin Securities will go on the market almost as a whole, and compared to the current smallest brokerage firms in the securities industry, Northeast Securities, Guohai Securities, and Baoshuo Shares (Huachuang Securities), which have a market value of 30 billion yuan, it is estimated that the valuation space after restructuring may be worth 30 billion yuan Significant improvements; on the other hand, the current company The ownership interest is 1.02 million square meters of commercial real estate. Land acquisition costs are low, and the gross margin of undeveloped properties exceeds 60%, corresponding to the company's NAV of about 6.9 billion yuan. Subsequent purchases of some real estate assets will be able to return billions of dollars in cash to support the development of the securities business. We maintain the company's 2016-17 earnings per share at 0.34 and $0.50 respectively, and reaffirm our highly recommended rating. 5. Risk warning: Sales fell short of expectations; asset consolidation between the company and major shareholders fell short of expectations.