Event: March 19, 2017, Huaxin Co., Ltd. announced its 2016 annual report. The company achieved operating income of 609 million yuan in 2016, an increase of 67% over the previous year; net profit of 15.42 billion yuan, an increase of 18% over the previous year. The EPS is 0.29 yuan, and the ROE is 7.8%. Shanghai's mixed reform fell to Huaxin, and real estate companies became brokerage firms. On March 2, 2017, the company's plan to replace major assets and issue shares to purchase assets and raise supporting capital was approved unconditionally by the Securities Regulatory Commission. According to the plan, Huaxin Co., Ltd. will inject 92% of the shares into Huaxin Securities, and the company's main business will change to a situation where the securities business is mainly the securities business, supplemented by the rental management of small holdings and other businesses, and will no longer engage in real estate development business. A fixed increase promotes performance improvement and the revenue structure is optimized. As of August 31, 2016, Huaxin Securities had net assets of 3.6 billion yuan. The company's capital strength will be enhanced by raising about 1.2 billion yuan in supporting capital this time. Small and medium-sized brokerage firms are more flexible in terms of mechanisms and have higher operating efficiency. After the net capital is replenished, performance is expected to increase dramatically. According to the company announcement, Huaxin Securities achieved operating income of 890 million yuan from January to August 2016. Brokerage business (accounting for 42%) and investment business (accounting for 32%) were the main sources of revenue for Huaxin Securities, causing large fluctuations in profit. After the fund-raising is completed, the scale of Huaxin Securities's credit business, self-operated business, etc. will be further expanded, and the business structure will be further optimized. (1) Brokerage business: The transaction volume rose against the market, and the share increased steadily. According to Choice statistics, Huaxin Securities's stock base trading volume for the full year of 2016 reached 1.12 trillion yuan, an increase of 5% over the previous year, achieving a reverse market rise against the backdrop of an overall decline in market turnover; the market share in trading volume rose to 0.4078%, ranking 55th in the industry. According to the company announcement, as of August 31, 2016, the number of sales departments of Huaxin Securities reached 60, three times that of the end of 2014; the commission rate was 0.0485%, and the downward trend was slowing down. We expect a steady increase in the market share of the brokerage business, with the commission rate remaining at around 0.043% in 2017, and forecast that the net income of Huaxin Securities's agency trading in 2017 will be 578 million yuan, respectively. (2) Credit business: The revenue of the two loans contributed greatly, and the scale of the business was expanded by fixed increases. According to Choice statistics, as of December 31, 2016, Huaxin Securities's securities financing balance reached 3.4 billion yuan, a year-on-year decrease of 17.5%, with a market share of 0.36%; the unencumbered balance of stock pledge repurchases was 956 million yuan, an increase of 243% over the previous year, and the market share reached 0.12%. From January to August 2016, Huaxin Securities achieved net interest income of 194 million yuan from the two finance business, which is the largest component of credit business revenue. The capital raised this time will be used to expand the scale of the Liangrong business and equity pledge repurchases, which will help consolidate and strengthen the company's market share. The net interest income of Huaxin Securities is expected to reach more than 450 million yuan in 2017. (3) Investment business: Sino-foreign alliances, focusing on underwriting. The investment banking business of Huaxin Securities is mainly carried out by Morgan Huaxin, a subsidiary jointly established with Morgan Stanley. The advantages of Sino-foreign joint ventures are obvious. According to Choice statistics, in 2016, Huaxin Securities and Morgan Huaxin completed a total of 80 single-share bond underwriting projects, including 2 IPOs, 5 additional issuers, 1 convertible bond, and 72 bonds. From January to August 2016, Huaxin Securities achieved net income from investment banking business fees of 294 million yuan. It is estimated that the company's revenue from this business will reach 550 million yuan in 2017. (4) Asset management business: Active management scale improvement to gain a differentiated competitive advantage. According to the company announcement, as of August 31, 2016, Huaxin Securities's fiduciary asset management scale was 112.4 billion yuan, an increase of nearly ten times over the end of 2014, ranking 39th; in January-August, asset management revenue was 69.19 million yuan, ranking 46th, of which pooled asset management revenue was 29.17 million yuan, surpassing targeted asset management business, making it the largest contributor to performance in asset management business. Huaxin Securities has achieved a differentiated competitive advantage in asset securitization and other fields. As of August 31, 2016, Huaxin Securities has registered 7 asset securitization products, ranking 17 in the industry. The asset management business revenue of Huaxin Securities is estimated to reach 126 million yuan in 2017. (5) Self-operated business: Equity investment accounts for a high proportion, and income elasticity is high. According to the company announcement, as of August 31, 2016, Huaxin Securities's equity business scale was 466 million yuan, while the bond-type self-employment scale was 370 million yuan. The equity sector's self-employment scale exceeded that of bond-type self-employment. The relatively high share of equity investment brought greater flexibility to the self-operated business, and 200 million yuan of capital raised would be invested in self-operated business. If the market stabilizes, the self-operated business performance will improve markedly. Huaxin Securities's self-operated business revenue is estimated to reach 130 million yuan in 2017. Shareholders are rich in resources and are deepening the integration of industry and finance. After the major asset restructuring is completed, Huaxin Co., Ltd. will become the sole financial listing platform for Shanghai Yidian Group, and the more than 140 enterprises under the Shanghai Yidian Group are expected to provide Huaxin Securities with more business cooperation opportunities. Investment advice: Buy-A investment rating, target price of 16.8 yuan for 6 months. We expect the company's 2017-2019 EPS to be 0.4 yuan, 0.63 yuan, and 0.67 yuan, and the target price for 6 months is 16.8 yuan. Risk warning: market downturn risk, business mismanagement risk, credit default risk