Matters: Dongxing Securities today disclosed its 2016 annual report and 2017 quarterly report. The company achieved operating income of 3,573 billion yuan in 2016, or -33.37% year-on-year; net profit attributable to shareholders of listed companies was 1,353 billion yuan, or -33.83% over the same period, superior to the industry level. The company achieved operating income of 721 million yuan in the first quarter of 2017, +6.79% year-on-year; net profit attributable to shareholders of listed companies was 302 million yuan, +8.46% year-on-year, mainly due to the increase in investment income from self-operated business. In addition, the 2016 profit distribution plan was also disclosed. The company plans to distribute cash dividends of RMB 1.5 million to all shareholders for every 10 shares, for a total of 414 million yuan, accounting for 30.58% of the net profit attributable to the owners of the parent company in the 2016 consolidated statement. Investment Essentials 1. The establishment of a mutual fund system was effective. The 2017Q1 commission rate declined, and the market share of the brokerage business increased slightly. The company achieved a cumulative net brokerage revenue of 1,222 billion yuan in 2016, a year-on-year decrease of 54.69%, accounting for 33% of the company's overall net revenue. The 2016Q4 commission rate was 3.94%, up 17% month-on-month from 3.36% in the third quarter. Stock trading volume market share declined slightly in Q4 2016, from 1.05% to 0.96%. The 2017Q1 commission rate fell back to 3.47%, and the market share rose slightly to 0.98%. The company formally established the Internet Finance Department. The construction of a mutual fund system has been very effective. It has taken the lead in implementing special functions such as intelligent investment and account analysis. The number of customers signed up for the investment product “Gold Stock Online” and the asset size of the contracted customers have increased rapidly. 2. Investment banking business performance improved. Proprietary investment income improved year-on-year in the first quarter. Dongxing Securities achieved net income from investment banking business of 786 million yuan in 2016, an increase of 29% over the previous year. A total of 1 IPO project, 14 equity refinancing projects, 51 corporate bonds and 10 asset-backed securities products were completed, with a cumulative principal underwriting amount of 61,155 billion yuan. The number of main stock underwriters in the industry ranked 19th, up 28 places from 2015. The scale of investment banking business has increased dramatically. In particular, the amount underwritten for A-shares has increased by 4 times that of 2015. In the first quarter of 2017, the company's securities underwriting business had net revenue of 174 million yuan, a year-on-year decrease of 15%. The company achieved net revenue of 444 million yuan from self-operated business throughout the year, a year-on-year decrease of 66.57%. The fixed income investment business continued to expand. As of 2016, the business scale was close to 16.5 billion yuan, an increase of 75% over the previous year. Asset management revenue was 616 million yuan, up 14.48% year on year. The company's asset management trust scale at the end of 2016 was 10.586 billion yuan, and the fund management product scale was 7.157 billion yuan. The year-on-year expansion was rapid over the end of last year, and the growth rate reached 1416%. In the first quarter of 2017, Dongxing Securities's self-operated business achieved investment income (including income from changes in fair value) of 312 million yuan, an increase of 13% over the previous year. 3. Backed by a fully licensed financial control platform for major shareholders, business collaboration and international development are worth expecting that China Oriental, the controlling shareholder of the company, completed the acquisition of Bank of Dalian last year and collected all financial licenses. At the same time, the shareholding system reform was completed, and it was established in October last year. It is expected that new strategic investors will be introduced in the future to further integrate high-quality resources at home and abroad. The Group regards collaboration between products, customers, channels, and capital as an important strategic goal. As the only listed financial platform under Oriental, China, the company has an important strategic position. Backed by shareholders' financial control platform resources and dominant position in the main non-performing asset business, it will continue to improve its business strength. Dongxing Hong Kong, a wholly-owned subsidiary, had a broad presence overseas last year, and is expected to take advantage of the gradual opening up of capital markets to promote the internationalization of overseas business. 4. Investment advice: Dongxing Securities is deeply involved in the Fujian region. The business structure is balanced, and the annual report performance is better than expected. The non-public offering of 4.8 billion yuan was completed in October last year, and capital strength was further strengthened. In addition, the controlling shareholder's full financial license plus non-performing asset business brought room for business collaboration. We expect the company's 2017/2018 EPS to be 0.55/0.60, and the corresponding PE is 30.17/27.95 times, respectively, giving a recommended rating.