Matters: On the evening of November 7, the company announced a draft of major asset exchange and issuance of shares to purchase assets and raise supporting funds: 1) The company plans to replace its real estate development business assets and liabilities with the equivalent of the 66% shares of Huaxin Securities held by the Yidian Group (as an invested asset); 2) The company plans to use 9.59 yuan per share to issue shares to Yidian Group to purchase the difference between the purchased assets and the assets placed. It issues shares to Feile Audio to buy 24% of Huaxin Securities, and shares to purchase 2% of Huaxin Securities; 3) Company plan The issue price of 10.6 yuan/share raised 1.27 billion yuan in supporting capital from Yidian Group, Guosheng Asset, and China Taibao issued shares. Furthermore, the company's trading will continue to be suspended. Key points 1. The restructuring is injected into Huaxin Securities, and the securities business becomes the main business. In this plan, Huaxin Co., Ltd. will issue 4 billion yuan (issue 5.37 yuan shares, price 9.6 yuan/share) to Yidian Group, Feilo Audio, and Shanghai Beiling, and use 900 million yuan of real estate development assets to purchase 92% of Huaxin Securities for 4.9 billion yuan. At the same time, supporting financing will increase by nearly 1.3 billion yuan (issue 120 million shares, price 10.6 yuan/share) to supplement the net capital of Huaxin Securities. After the transaction is completed, Huaxin Co., Ltd. will hold 100% of Huaxin Securities, and the company will hold 100% of Huaxin Securities. Shifted to focus on securities business, The situation is complemented by a small number of owned property leasing management and other businesses; at the same time, the share capital has also expanded to 1,061 million shares, and the market value has expanded to 12.7 billion yuan. At the same time, the net assets of Huaxin Securities will also expand from 3.3 billion yuan to 4.6 billion yuan. Furthermore, after this transaction, Yidian Group directly held 27.5% of the shares in the listed company, and indirectly held 25.8% of the shares in the listed company through Huaxin Real Estate and Feilo Audio. In total, it held 53.3% of the shares in the listed company, and is still the controlling shareholder of the listed company. 2. Huaxin Securities has a nationwide layout, and there is a lot of room for subsequent development as a comprehensive securities company. As a comprehensive securities company, Huaxin Securities's business scope covers all traditional business types of securities companies. Over the past three years, the company's branches have rapidly expanded from 21 to more than 60, covering more than 40 large and medium-sized cities, and initially completed the national strategic layout. At the same time, the company is committed to business diversification and innovative development. While continuously improving the depth of existing business and services, the company is actively expanding into new business fields. In 2016, the company was rated as one of the top 20 gold medal market makers in the new third board and the best Chinese private equity trading service broker of the year. Currently, the expansion of the company's business scale and the development of capital intermediation business and innovative business are all subject to capital restrictions. After the completion of asset securitization, the company's capital strength and financing channels will be significantly enhanced, and the company's business development space is expected to be greatly enhanced. 3. Investment suggestions: The undervaluation injection of Huaxin Securities creates more room for valuation improvement, and reaffirms that in this restructuring plan, Huaxin Securities's 100% equity valuation corresponds to 5.4 billion yuan, corresponding to PB nearly 1.7 times. The horizontal comparison is currently lower than 2.7 times that of the brokerage industry, 4.2 times that of small and medium-sized brokerage firms, and 2.4 times the assets acquired by brokerage firms in the past three years. Undervaluation injection has also created a large room for valuation improvement. Given the minimum net assets of the Huaxin Securities industry, the minimum market value in circulation, and relatively small supporting financing amounts, we returned to Huaxin Securities after supporting financing Net assets At 4.6 billion yuan, the PB valuation is four times higher than the valuation of the industry. It is estimated that Huaxin Securities will have a reasonable valuation of about 18 billion yuan, plus the remaining holding property valuation of 2 billion yuan, a total valuation of 20 billion yuan. Compared with the current market value of 12.7 billion yuan after stock expansion, there is room for 57% increase. Until the transaction is completed, we will not adjust our profit forecast and still maintain the company's 2016-17 earnings per share of 0.34 and 0.50 yuan, respectively, which reaffirms our highly recommended rating. 4. Risk warning: The M&A and restructuring process fell short of expectations.