Main points of investment:

Events. The company publishes its 2016 annual report. During the reporting period, the company realized operating income of 8.66 billion yuan, an increase of 9.66% over the same period last year; net profit belonging to shareholders of listed companies was 723 million yuan, an increase of 34.0% over the same period last year; and basic earnings per share was 0.64 yuan. The company's annual dividend plan is 2.0 yuan (including tax) for every 10 shares. The company released its quarterly report for 2017. During the reporting period, the company realized operating income of 1.44 billion yuan, an increase of 1.60% over the same period last year; net profit belonging to shareholders of listed companies was 92.37 million yuan, an increase of 205.1% over the same period last year; and basic earnings per share was 0.08 yuan.

In 2016, driven by the sale of commercial housing in the first phase of Senlan Mingxuan, the company's revenue increased by 9.66%; driven by the company's high carry-over gross profit margin, the company's net profit growth expanded to 34.0%. In the first quarter of 2017, the company had no property carry-over but increased revenue from goods and trade, and revenue increased by 1.60%. The decline in corporate taxes and fees in the current period expanded the growth of net profit to 205.1%. By the end of 2016, the rental factory and warehouse held by the company in Shanghai was about 2.58 million square meters, with rental income of about 1.009 billion yuan, and the rental income of leasing business-run properties held in Shanghai was about 3274 million square meters, with rental income of about 172 million yuan. In 2016, the company achieved real estate sales revenue of 2.385 billion yuan, an increase of 36.6% over the same period last year. In 2016, the company realized import and export trade and import and export agency income of 3.339 billion yuan, a decrease of 8.06% over the same period last year, and logistics revenue of 823 million, an increase of 6.08% over the same period last year.

In June 2016, 100% equity of the company's controlling shareholder, Shanghai Waigaoqiao Asset Management Co., Ltd. was transferred to Shanghai Pudong Investment Holdings Co., Ltd. In September 2015, the company publicly listed the transfer of the office building project at No. 9 Jiafeng Road. According to the company's 2016 annual report, the company plans to complete a net profit of 745 million yuan attributed to the parent company in 2017, an increase of 3.1% over the same period last year. The company plans to complete the newly built and rebuilt property area of about 590000 square meters (including 158,000 square meters of newly completed properties in Senlan area, including 92000 square meters of commercial offices and 66,000 square meters of Senlan residential buildings), and 393000 square meters of industrial properties in the development park.

Investment advice. We will benefit from the reform of state-owned assets and the construction of free trade zones and maintain the rating of "increasing holdings". At present, the construction of Shanghai Free Trade Zone has become a national strategy, Waigaoqiao and even the joint-stock company will become the core platform of the global strategy, and the fundamentals of the company have entered a substantial reversal stage. In the future, the company will focus on developing the first phase of the free trade zone, including the port area, logistics area, Senlan Middle Block and Southern Block International Community, in order to achieve "production-city integration". Among them, the Senlan project 1.3 million square meters (currently launched 78.58 million square meters), is expected to bring rich returns to the company. We estimate that the EPS of the company in 2017 and 2018 is 0.81 and 1.09 yuan respectively. Compared with the revaluation of factors of production under the Hong Kong free port policy, we expect that the value of the company's assets will significantly benefit from the promotion of the free trade pilot zone in the future, and receive five major benefits: policy dividends, industrial upgrading, land price revaluation, positioning change and function upgrading. Considering that the company will benefit from Shanghai's state-owned assets reform and the construction of the free trade pilot zone, targeted financing will speed up the construction of the company's five major platforms, and taking into account that the average PE of listed companies in the Shanghai Free Trade Zone in 2017 is about 26 times, we use 30 times PE in 2017 as the company's six-month target price, maintaining the "overweight" rating.

Risk hint: the industry faces two major risks: interest rate hike and policy regulation.