Fucheng's 16-year income was 1.371 billion yuan, year-on-year + 2.02%; net profit 185 million yuan, year-on-year + 11.04% Fucheng shares released 2016 annual report, the company achieved operating income of 1.371 billion yuan in 2016, an increase of 2.02% over the same period last year; realized return net profit of 185 million yuan, an increase of 11.04% over the same period last year; realized non-return net profit of 161 million yuan, an increase of 48.55% over the same period last year, which is basically in line with our expectations.

The non-net profit of the Pagoda Mausoleum was 103 million yuan in 2016, and the non-return net profit of the Pagoda Mausoleum was 103 million yuan in 2016, an increase of 22% over the same period last year, exceeding the gambling requirement of 102 million yuan. According to the terms of the performance bet, the net profit deducted by the pagoda mausoleum from 2017 to 2018 will not be less than 122 million yuan and 147 million yuan, up 18.45% and 20.49% respectively from the same period last year. The revenue of the Pagoda Mausoleum in 2016 was 197 million yuan, up 20.18% from the same period last year, the sales volume was 3266, down 2.59% from the same period last year, and the unit price was 603,000 yuan per unit, an increase of 23.18% over the same period last year. We believe that under the background of sufficient tomb inventory and rising tomb prices in the pagoda mausoleum, it is a high-probability event to achieve gambling performance in the next two years.

In 16 years, the integration of Yixing Longyi and Qianjiang Mausoleum was completed, and in 17 years, the Fucheng Hehui Fund, which is owned by Fucheng shares, successfully integrated Longyi Cemetery in Yixing, Jiangsu Province and Qianjiang Mausoleum in Hangzhou, Zhejiang Province. It confirms Fucheng's industry integration ability as one of the leading companies in the industry. In 2017, the company and its M & A funds will continue to promote inter-industry mergers and acquisitions, gradually expand the coverage of the industry, and shift from focusing on the Beijing-Tianjin-Hebei region in the past to developing potential markets nationwide, so as to accelerate the proportion of funeral business in the company's assets and performance. At the same time of foreign mergers and acquisitions, the company is also training professionals to prepare for future management output, and build the pagoda mausoleum into the company's boutique and business card.

With the opportunity of integrating hundreds of billions of markets, Fucheng shares are expected to replicate ENN Energy's expansion path. The funeral industry has the characteristics of more than 50 billion market capitalization leaders. First of all, the capacity of the industry is large enough. According to Euromonitor statistics, the market size of the funeral industry in 2017 has been close to 100 billion yuan. Secondly, the market concentration of the industry is low enough, the market share of the top five companies in the industry is only 5%, and the integration space of the leading companies in the future is large enough. We believe that Fucheng shares are expected to replicate ENN Energy's growth process, the dimension of growth on the one hand comes from the expansion of the geographical coverage and potential customer base, on the other hand, it comes from the continuous increase in product prices brought about by consumer upgrading.

Optimistic about the development prospect of Fucheng shares as an industry integrator and maintaining the "buy" rating, we believe that the systematic premium of A shares and the high shareholding ratio of major shareholders of Fucheng shares give Fucheng shares strong extension expansion potential and ability. Fucheng shares are optimistic about the development prospect of Fucheng shares as an integrator of the funeral industry. According to our profit forecast, Fucheng shares' income from 2017 to 2019 reached 1.561 billion yuan, 1.716 billion yuan and 1.875 billion yuan respectively, and EPS reached 0.27,0.30 yuan and 0.33 yuan respectively. The target price range is 17.70-18.93 yuan, maintaining the "buy" rating.

Risk hint: the marketization trend of cemetery service industry has been reversed; food safety issues.