Events: Western Securities released its annual report in 2016 and quarterly report in 2017. the company's operating income in 2016 and 2017Q1 were 3.406 billion yuan and 663 million yuan respectively, down 39.61% and 27.68% respectively over the same period last year. The net profit attributed to the parent shareholders was 1.125 billion yuan and 182 million yuan respectively, down 42.99% and 34.22% respectively. The company's basic earnings per share in 2016 was 0.40 yuan, down 44.12% from the same period last year. Comments:

The company's annual performance is better than the overall level of the industry. In 2016, the operating income of the securities industry reached 327.994 billion yuan, down 42.97 percent from the same period last year, and the net profit was 123.445 billion yuan, down 49.57 percent from the same period last year. Despite the sharp decline in trading volume in the securities market in 2016 and increasingly fierce competition in the industry, the decline in corporate profits is better than that of the industry as a whole, thanks to a diversified income structure and a sound business style.

Deep ploughing Shaanxi strategy, the regional advantage is obvious. In terms of business development, the company focuses on the strategy of "deeply ploughing Shaanxi": in terms of brokerage business, the company was approved to set up 21 branches in 2016 to further "cultivate Shaanxi and distribute the whole country"; in terms of investment banking business, the company underwrites 9 corporate bonds, corporate bonds and short-term bonds of securities companies in Shaanxi, ranking first in scale and quantity in Shaanxi. In terms of innovative business, the company has recommended a total of 25 enterprises to list the new third board in Shaanxi, accounting for 17.12% of the total number of listed enterprises in the province, and continues to maintain a dominant position in Shaanxi.

The performance of large investment banks is excellent, and pan-buyers are steadily rising. The net income from brokerage fees was 937 million yuan, down 65.49% from the same period last year; the net income from investment banking fees was 864 million yuan, up 21.31% from the same period last year; the net income from asset management fees was 105 million yuan, up 97.13% from the same period last year; the investment income was 1.367 billion yuan, up 26.27% from the same period last year; and the net interest income from Liangxiong business was 396 million yuan, down 46.72% from the same period last year. It can be seen that the investment income replaced the brokerage fee net income as the main source of profits in 2016, and the investment banking business benefited from the favorable policies such as IPO acceleration and new third board change, resulting in excellent performance. In addition, the total size of the company's asset management business was 64.765 billion yuan, an increase of 52.25% over the end of last year. In addition to expanding the scale of business, the company has actively improved its active management capacity, increased the proportion of active management products, and obtained the fiduciary management qualification of insurance funds.

Earnings forecast and rating: we forecast that Western Securities will achieve operating income of 4.463 billion yuan, 5.33 billion yuan and 5.758 billion yuan in 2017, 2018 and 2019 respectively, and the net profit attributable to the parent company will be 1.627 billion yuan, 1.915 billion yuan and 1.991 billion yuan, respectively. the corresponding earnings per share are 0.46,0.55 and 0.57 yuan respectively, maintaining the company's "hold" rating.

Risk factors: the risk of continuous decline in trading volume and the volatility of proprietary business; the risk of lower barriers to entry, the performance of innovation business is not as expected.