Incidents Dongxing Securities announced the 2016 Annual Report and 2017 Quarterly Report. In 2016, the company achieved operating income of 3,573 billion yuan, -33.37% year-on-year, net profit of 1,353 billion yuan, a year-on-year net profit of 1,353 billion yuan, a year-on-year increase of -33.83%, and an EPS of 0.527 yuan. The decline in revenue and net profit was better than the industry level. In 2016, the company's equity to parent shareholders was 18.318 billion yuan, +34.84% over the same period last year, and the weighted average ROE was 9.15%. The company plans to distribute a cash dividend of 1.5 yuan (tax included) for every 10 shares to all shareholders. In the first quarter of 2017, the company achieved operating income of 721 million yuan, +6.79% year-on-year, and net profit of 302 million yuan, +8.46% year-on-year. Brief review Relying on the parent company China Oriental, which has broad scope for business collaboration, the parent company China Oriental has built a strategic layout with full financial licenses, with the non-performing asset disposal business as the core. Relying on China Oriental's strong comprehensive financial layout and resource advantages, the company determined “big investment banks, big asset management and big sales” as a development strategy, and jointly explores projects and shares customer resources in various business fields such as investment banking, asset management, and investment. The synergy effect is remarkable. The cumulative scale of various collaborative businesses carried out by the company and China Oriental in 2016 exceeded 100 billion yuan, and the total revenue of the collaborative business is expected to increase by 243.77% year-on-year. On this basis, the share of the company's investment banking and asset management revenue increased from 11% and 1% last year to 22% and 17%, respectively, while the share of credit business increased from 13% to 15%, and the optimization of the business structure was obvious. At present, China Oriental's restructuring has been completed, and “collaboration” is positioned as the key for the Group to achieve its strategic development goals; the company, as its only listing platform, will continue to benefit from the supply of non-performing asset projects in 2017, and is expected to seize the opportunity period of rapid development of the non-performing asset disposal business and achieve overtaking at a corner. Benefiting from business collaboration, the “Big Investment Bank, Big Asset Management” strategy achieved remarkable results. In 2016, the company achieved investment banking business revenue of 786 million yuan, +28.86% over the same period last year. The company's annual stock lead underwriters increased by 28 to number 19 in the industry, with a cumulative total underwriting amount of 75.695 billion yuan, +73.44% year-on-year, mainly due to the additional amount issued and the amount of bonds issued by +316.35% and +56.56%, respectively. At the same time, the company completed 346 financial advisory projects throughout the year, and a total of 162 companies were listed on the New Third Board (ranked 21st in the industry). By the end of 2016, the company had 5 IPO sponsorship projects under review and 12 refinancing sponsorship projects under review. The project reserves were comparable to the actual amount completed in 2016, which guaranteed the 2017 performance. In 2016, the company achieved asset management business revenue of 616 million yuan, +14.48% over the same period last year. At the end of the year, the asset management trust scale was 10.586 billion yuan, a sharp increase of 66.24% over the previous year, mainly because the targeted asset management scale was +68.39% year-on-year to 63.387 billion yuan. At the same time, the scale of special asset management and the scale of fund product management were +213.40% and +1416.31%, respectively, showing impressive performance. In the future, the company will take advantage of the advantages of China Oriental Finance's entire industry, and the variety of asset management is expected to be further enriched. The “online+offline” business model helped the brokerage business to advance steadily. In 2016, the company achieved brokerage business revenue of 1,222 billion yuan, -54.68% over the same period last year. The performance was superior to the industry, mainly benefiting from the “online+offline” business model. On the online side, the company formally established the Internet Finance Department to provide customers with a package of services including robot investment through the self-developed “Dongxing 198” app. More than 92.95% of the company's new brokerage customers in 2016 opened accounts through mobile phones, an increase of 8.61 percentage points over the previous year. On the offline side, the company has established a management system with branches as the core. In 2016, 2 new sales departments and 5 branches were opened, and the number of branches reached 72, mainly in the Fujian region. On this basis, the company's cumulative stock turnover in the two markets in 2016 was 2.75 trillion yuan, with a market share of 1.08%, an increase of 0.07 percentage points over 2015, and the net income ranking of the agency trading securities business rose 5 places to 26th place. At the same time, the company's brokerage customer structure was further optimized, and the number of accounts opened by institutional customers and high-net-worth customers increased for two consecutive years. At the end of the year, customers with assets above 100,000 yuan accounted for 12.72%, and the number of institutional customers was +18.51% year-on-year. In the future, the company will promote the establishment of 30 new branches, build a competitive Internet financial platform, and deepen online and offline links. Increase capital strength by fixed increases, and deepen collaboration with sister enterprises through multiple means. In October 2016, the company completed a non-public offering plan, actually issued 254 million shares and raised 4.777 billion yuan in capital. After completing the capital increase, the company's capital strength will increase markedly, and the asset ranking will enter the top 20. As capital is put in place, the company's business structure will continue to be optimized, and the asset management capabilities of investment banks are expected to be further enhanced. Meanwhile, in August 2016, the company signed a memorandum of strategic cooperation with Bank of Dalian. In December, Dongxing Investment, a wholly-owned subsidiary, completed the subscription of 25% of Dongfang Jinke's shares. Bank of Dalian and Dongfang Jinke are important banks and Internet finance licenses owned by Oriental China. These actions will strengthen collaboration between the company and brother enterprises and achieve customer resource sharing, thus improving the company's own online+offline channel layout and accelerating the development of related businesses. Investment recommendations Currently, the company's PE and PB are 31.53X and 2.52X, respectively, and the valuation level is at an all-time low. As collaboration between the company and brother companies deepens, the “online+offline” business layout will be further improved to continue to help the brokerage business progress steadily; at the same time, relying on parent company resources, the company is expected to share the rapid development dividends of the AMC industry and accelerate progress towards the goal of “big investment banks, big asset management, and big sales.” Net profit is expected to be 1,760 billion yuan and 2.128 billion yuan in 2017-2018, respectively, with a year-on-year ratio of +30.07% and +20.94%, and an EPS of 0.64 and 0.77 yuan, giving it a “buy” rating. Risks suggest that the collaborative effects of business have not met expectations, and that supervision of investment banking and asset management business is becoming stricter.