Dongguan Holdings publishes 2016 annual report. In 2016, the company achieved operating income of 1.252 billion yuan (+ 14.1%), gross profit margin rose to 65.5% (+ 1.4pct), net profit attributed to the parent company was 829 million yuan (+ 1.5%), EPS was 0.80 yuan. The company plans to pay a cash dividend of 3 yuan (including tax) for every 10 shares.

The increase in traffic led to a rise in revenue. Driven by factors such as the continuous growth of the number of private cars in the Pearl River Delta region, the integration of Shenzhen and Shenzhen, and the renovation of toll-evading cars on the provincial network, the growth rate of hybrid traffic on the whole line of Yashi-Shenzhen highway expanded to 18.0% on the basis of an increase of 10.9% in 2015. as a result, the company achieved an operating income of 1.252 billion yuan, an increase of 14.1% over the same period last year. However, due to the impact of the company's investment income (holding 20% of Dongguan Securities) fell sharply by 32.2% to 288 million yuan, the company finally achieved a net profit of 829 million yuan, an increase of 1.5% over the same period last year.

The financial leasing business performed strongly. In 2016, the company's financial sector business achieved revenue of 194 million yuan, an increase of 41.0% over the same period last year, and a net profit of 78 million yuan, an increase of 70.7% over the same period last year. In terms of business, the company's financial leasing business performed strongly, with revenue of 172 million yuan in 2016, an increase of 24.6% over the same period last year, and a net profit of 72 million yuan, an increase of 56.9% over the same period last year. The company's commercial factoring business began to make a profit, with a net profit of 6.6622 million yuan in 2016.

With the promotion of the economic bay area of Guangdong, Hong Kong and Macao, the company's high-speed main business is expected to fully benefit. In 2016, the company realized 1.034 billion yuan in revenue from operating highways, an increase of 10.7 percent over the same period last year, and the gross profit margin increased by 2.2 percent to 66.1 percent. In terms of revenue structure, the highway business accounts for more than 80% of the company's revenue. 1) Premier Li Keqiang proposed on April 11 that the central government would study and formulate Guangdong-Hong Kong-Macau Greater Bay Area's development plan this year, and the traffic flow of the Dongguan-Shenzhen Expressway operated by the company is expected to bring a significant boost; 2) the traffic mileage of newly built expressways in Guangdong Province in 2016. The gradual improvement of the highway network in Guangdong Province will lead to the growth of the company's traffic flow, and it is expected that the company's main highway industry will fully benefit in the future.

Investment advice: we expect the company's EPS from 2017 to 2018 to be 0.88 yuan and 0.99 yuan respectively, with a "buy-A" rating and a six-month target price of 18.40 yuan.

Risk hint: the growth of traffic flow is slow, and the financial business is not as good as expected.