Incident On the afternoon of March 19, 2017, Huaxin Co., Ltd. released its 2016 annual report. During the reporting period, it achieved operating income of 609 million yuan, +66.79% over the same period; realized net profit of 155 million yuan, an increase of +18.27% over the previous year; EPS was 0.29 yuan, and ROE was 7.83%. A brief review of real estate removal from historical inventories led to an increase in performance. During the reporting period, the company achieved revenue of 609 million yuan, +66.79% year-on-year. Looking at the breakdown, real estate contributed 488 million yuan in revenue, +67.65% year-on-year, mainly due to an increase in the sales area of office properties and some stock properties in the Jinqiao Jinling Capital Park in Shanghai; real estate business costs were only +6.41% year-on-year, mainly because the current sales period was for stock real estate, and the book cost was far lower than the market price. In the end, the gross profit of the real estate business reached 330 million yuan, a sharp increase of 151.87% over the previous year, constituting the main reason for the increase in performance; the gross margin of the real estate business was 67.65%, an increase of 20.74 percentage points over last year, reaching the highest value in seven years. There was an increase in the fee rate for the period. During the reporting period, the company's sales expenses were 19.3482 million yuan, +87.54% year-on-year, mainly due to the increase in sales volume, sales consulting fees and business promotion expenses increased by 7.1913 million yuan; management expenses were 993,314 million yuan, +90.19% year-on-year, mainly due to the increase in depreciation expenses of Oren Industrial subsidiaries that were newly acquired last year, and the increase in depreciation expenses of 109.34 million yuan due to the expansion of personnel related to trusteeship management business; financial expenses of 60.499 million yuan, year-on-year + 117.45%, mainly due to an increase in interest expenses of 16.761 million yuan due to an increase in current loans, and a decrease in interest income of 15.5949 million yuan due to a decrease in structured deposits. Property rental income has not been stabilized, and a bottom line of performance has been established. Thanks to a rental rate close to 100%, the company's property rental income remained stable. In 2016, the capital A and Shangcheng Road projects received a total rental income of 63.662 million yuan, +0.14% over the same period; the occupancy rate of Huaxin Haixin Building was 97.81%, a slight decrease of 0.21 percentage points over the previous year. Under the premise that there are no major changes in the return on rent in the industry, the valuation of owned properties will remain above 2 billion yuan. In the future, listed companies can operate and use such assets according to the company's strategic plans to provide flexibility and guarantee for performance. [Table plans to return _p to ICHT] Xin Securities's performance is superior to the industry average, and is on the cusp of expanding IPOs and convertible bonds. On March 2, 2017, the acquisition of 100% of Huaxin Securities by Huaxin Co., Ltd. passed the meeting unconditionally. After the restructuring was completed, the company's main business changed to the securities industry and no longer engaged in real estate development business. According to the annual report, the operating income and net profit of Huaxin Securities in 2016 were 1,469 million yuan and 282 million yuan respectively, with a year-on-year difference of -33.23% and -45.34%, respectively, which is superior to the industry average. The highlight of Huaxin Securities is its investment business as a joint venture with Morgan Stanley. The execution of the project is in full accordance with the high standards of the Morgan Stanley Global Platform. Since its establishment, it has issued bonds or equity financing for large state-owned enterprises such as the State Grid Corporation and Shenzhen Metro Group, demonstrating its ability to procure beyond its own scale. Since 2017, Morgan Huaxin Securities has underwritten a total of 5 billion yuan of convertible bonds, +566% over the same period, underwrote 9.183 billion yuan of other bonds, +13.37% over the same period last year, and has reserved 2 IPO projects. With the expansion of IPOs and convertible bonds, its investment banking business revenue in 2017 is expected to be close to 500 million yuan. The controlling shareholders are rich in resources, bringing room for imagination in the integration of industry and finance and the reform of state-owned enterprises. Shanghai Yidian Group, the controlling shareholder of Huaxin Securities, focuses on the three new industrial frameworks of information+real estate+non-banking, and is committed to providing smart city solutions; the non-bank financial sector, represented by Huaxin Securities, is responsible for providing various services such as asset securitization, asset management, and financial leasing to smart city projects. There is a lot of room for integration between industry and finance, and performance does not “depend on heaven.” Recently, the Shanghai State-owned Assets Administration Commission issued the “Key Work Points of the Party Committee of the Shanghai Municipal State-owned Assets Administration Commission in 2017". Through comparison one by one, we found that the Group is already at the forefront of reform in various areas such as promoting the qualitative and effective growth of the state-owned economy, developing a mixed ownership economy, promoting open market-based restructuring, and promoting scientific and technological innovation, and has reform opportunities in employee shareholding and equity incentives. The non-net capital business is strong, enjoys high valuations, and maintains an “increase in holdings” rating. When Huaxin Securities was invested, PE and PB were 21.49 times and 1.60 times, respectively, lower than comparable companies; after the restructuring was completed, the company's total share capital was 1,061 million shares. The estimated operating income of the company in 2017/2018 was 1,569 billion yuan/1,840 million yuan, +157.49%/+17.25% year-on-year; net profit was 339 million yuan/477 million yuan, +40.76% year-on-year. The corresponding PE is 45X, 32X, PB2.5X, and 2.39X, respectively. Considering the undervaluation of the company's real estate value and the elasticity of performance that future sales can release, it was given an “increase in holdings” rating. Risk warning: Investment bank reserve programs are insufficient, and there is a risk of a downturn in the market.