Event: Liaoning Chengda released its 2016 annual report, the company achieved operating income of 8.75 billion yuan (YoY-4%) in 2016, net profit of 950 million yuan (YoY+84%), total assets of 33.2 billion yuan (YoY+24%), and net assets of shareholders of listed companies reached 18.5 billion yuan (YoY+6%). The main reason for the sharp increase in the company's net profit from the same period last year was GF Securities Co., LTD. 's contribution of 1.319 billion investment income.

The company's profits mainly come from the financial sector.

(1) GF Securities Co., LTD. accounts for 90 per cent of profits. Liaoning Chengda is GF Securities Co., LTD. 's third largest shareholder (16.42%). GF Securities Co., LTD. made a net profit of 8.4 billion yuan in 2016, bringing an investment income of 1.3 billion yuan for the company, accounting for 92% of the operating profit. In 2016, GF Securities Co., LTD. led the industry in performance, improved the quality of brokerage business, increased credit transactions, led the IPO reserve industry, grew rapidly in bond underwriting, and its own decline was smaller than that of the industry, leading profitability, and investment bank management played a supporting role. for specific performance comments, please refer to our previous GF Securities Co., LTD. annual report "performance leading industry, ownership structure scattered".

(2) the profit contribution of China Insurance is increasing year by year. Liaoning Chengda acquired shares in China Insurance (19.595%). In 2016, China Insurance made a net profit of 850 million yuan, contributing 230 million yuan to Liaoning Chengda's investment income, accounting for 16% of the company's operating profit. ① China United property insurance market is in the forefront of the industry. China Insurance is mainly property insurance. In 2016, China property Insurance achieved a premium income of 38.5 billion yuan, with a market share of 4.16%, ranking fifth in the country. It is expected that the year-on-year growth rate of China United property Insurance premium income will be more than 5% in 2017. With the development of property insurance business, the profit contribution of China Insurance in the company from 2017 to 2018 will reach about 400 million yuan. ② China United Life is profitable. In November 2015, China United Life, a subsidiary of China United Insurance, was approved and established. In 2016, the company realized insurance business income of 125 million yuan and net profit of 5 million yuan (turning losses into profits since the third quarter of 2016). The shareholder advantage of ③ China Insurance is obvious. The largest shareholder of China Holdings is Oriental assets and the second largest shareholder is China Insurance Fund, both of which are state-owned, have strong platform advantages and rich resources, and play a positive role in extending the product line of China Holdings.

The steady development of diversified business. ① energy development losses reduced. Due to the sharp drop in international oil prices, the growth rate of the company's oil shale business has slowed down, but the impact of Chengda Hongsheng's impairment has been basically reflected. Progress has been made in the improvement of Baoming technology in Xinjiang, and the energy development business achieved operating income of 52.26 million yuan in 2016. At the same time, the pre-tax profit and loss decreased by 51% compared with the same period last year. It is expected that the future performance will gradually improve; ② biopharmaceutical performance will improve steadily. Chengda Bio has now listed the new third board, with an operating income of 1.03 billion yuan in 2016 (YoY+9.1%, accounts for 11% of the operating income). The adjustment of ③ trade circulation business will contribute to the future development. Chengda Fangyuan realized sales income of 3.07 billion yuan (YoY+11%, accounted for 35%) and domestic and foreign trade revenue of 4.58 billion yuan (YoY-13.6%, accounted for 52%), which is the main component of operating income. In addition, the company disposed of Carrefour's equity to carry out industrial adjustment to accumulate strength for the next step of development.

Using the market value method to estimate each sector, the value of the company is obviously undervalued. A GF Securities Co., LTD.: as of March 30, 2017, GF Securities Co., LTD. 's total market capitalization was 125.6 billion yuan, Liaoning Chengda's stake in GF Securities Co., LTD. accounted for 16.42%, and Liaoning Chengda's equity stake in GF Securities Co., LTD. had a book value of 20.6 billion yuan. B China Insurance: the estimated net profit of China Insurance in 2017 is 1.3 billion yuan, which is 23 times PE compared with the same industry. Liaoning Chengda's shareholding in China Insurance is 19.595%, corresponding to a market capitalization of 5.86 billion yuan. C Chengda Bio: as of March 30, 2017, the total market capitalization of Chengda Bio (831550.OC) was 6.8 billion yuan. Liaoning Chengda's shareholding in Chengda Bio accounted for 60.54%, and Liaoning Chengda held a book value of 4.1 billion Yuan. D Chengda Fangyuan: the net asset of Chengda Fangyuan is estimated to be 850 million yuan in 2017, compared with 2.5 times the PB given by the same industry. Liaoning Chengda's shareholding in Chengda Fangyuan accounts for 100%, corresponding to the market capitalization of 2.1 billion yuan; E Xinjiang Baoming: the net assets of Xinjiang Baoming is estimated to be 1.6 billion yuan in 2017, compared with 1.1 times PB, Liaoning Chengda's shareholding in Xinjiang Baoming accounts for 60.5%, corresponding to the market capitalization of 1.06 billion yuan. F trade (estimated value): it is estimated that the net assets of Liaoning Chengda trade in 2017 will be about 450 million yuan (according to the proportion of 100% shareholding), compared with the industry to give 2.2 times PB, corresponding to a market capitalization of 990 million yuan. A+B+C+D+E+F gets Liaoning Chengda's target market capitalization of 34.78 billion yuan. According to the company's 1.53 billion share capital, the company's target price is 22.73 yuan.

If the fixed increase is over, it is expected to bring about an improvement in the ownership structure. The company announced a revised version of the fixed increase plan on August 10, 2016, which intends to issue no more than 320 million shares to state-owned companies, Giant Investment, Jinhui Capital Management and China Europe Logistics. After the completion of the fixed increase in the future, new shareholders such as Giant Investment (7.84%), Jinhui Capital Management (4.33%), China Europe Logistics (4.33%) and Liaoning State-owned Company (4.33%) will be introduced, and the controlling role of a large group (9.18%) will remain unchanged, which will bring about the optimization of ownership structure in the future. At present, it will be a while for the increase.

Investment advice: buy-An investment rating, 6-month target price of 22.73 yuan. We expect the company's revenue growth from 2017 to 2019 to be 0.62 yuan, 0.77 yuan and 1.03 yuan respectively.

Risk tips: stock market risk; falling oil prices; fixed growth failure; insurance losses, etc.